PMI can make a conventional purchase possible with less cash down. Its value depends on the quoted cost, the money you retain and the path to removing it. You don't need to assume PMI lasts forever, and you shouldn't assume it disappears the moment an online estimate shows 20% equity.
Start by identifying the type of insurance and the cancellation rules that actually apply to your loan.
My honest view on PMI
People treat PMI like a penalty. I see it as the price of buying years sooner. The key is having a plan to get rid of it: know your removal date, consider small extra principal payments, and watch your home's value. I remind my clients when they're getting close.
What drives the cost
PMI is priced mainly by credit score and down payment. Higher scores and bigger down payments mean lower PMI. At strong scores, it's often less than FHA's monthly premium, with no upfront charge.
How to remove it
By request: once your balance reaches 80% of the original value, you can ask your servicer to cancel it, with a good payment history.** Automatically:** it ends when you reach 78% of the original value on your original schedule.** From appreciation:** if your home's value rises, many servicers allow removal based on a new appraisal after a waiting period, typically at 75% of the new value after two years or 80% after five.
When does my PMI come off?
Based on your original value and a 30 year schedule. Appreciation can get you there sooner.
Conventional PMI ends when you reach enough equity; FHA mortgage insurance usually lasts the life of the loan
Conventional, 5% down
PMI
No mortgage insurance
FHA, 3.5% down
1.75% upfront, then monthly premium for the life of the loan
Year 1
Year 30
Simplified. PMI often ends sooner with appreciation.
Why removable PMI matters over time.
To see what that difference is worth for your quotes, use the conventional vs FHA calculator.
Other options
Lender paid PMI: built into a slightly higher rate. No monthly line item, but it can't be cancelled.** Single premium:** paid once at closing, sometimes by the seller.
PMI vs FHA and USDA
FHA charges 1.75% upfront and usually lasts the life of the loan with less than 10% down. USDA charges 1% upfront and 0.35% a year for the life of the loan. See FHA mortgage insurance and USDA fee.
PMI off in under five years
Chris bought with 5% down. His home value rose and he made small extra payments. After about four years, a new appraisal showed enough equity and his servicer removed PMI.
PMI protects the lender rather than the house
Private mortgage insurance protects the lender against specified default losses. It is different from homeowners insurance, which covers property risks under the policy. Paying PMI doesn't eliminate your obligation to pay the mortgage or prevent foreclosure if payments aren't made.
Conventional loans with less than 20% down commonly require mortgage insurance. The actual premium depends on the quote and transaction. Monthly borrower paid, upfront, split and lender paid arrangements have different cash flow and cancellation implications.
Don't compare one arrangement's monthly premium with another arrangement's total financing price. A lender paid version can have a different interest rate.
Evaluate a quote rather than a national average
Hypothetical example: a buyer can borrow $450,000 with a quoted $140 monthly PMI premium, or put another $50,000 down and borrow $400,000 without PMI. At the same illustrative 6.50%, 30 year rate, principal and interest are about $2,844 and $2,528.
The additional down payment reduces principal and interest by about $316 and removes the illustrative $140 premium, for about $456 less monthly expense. It also uses $50,000 of cash. Actual rates and PMI quotes can differ between structures.
That is a meaningful trade, not proof that either choice is right. Check reserves, immediate repair needs and other obligations before using all available cash to avoid a temporary insurance cost.
Requested cancellation uses a specific value basis
For covered loans, federal borrower requested cancellation generally centers on the balance reaching 80% of original value, whether on schedule or through extra payments. Original value generally means the lower of purchase price or appraised value at purchase, with a different reference for a refinance.
The written request must meet applicable conditions, including current payments, good payment history, no disqualifying junior liens and evidence that the property hasn't declined below original value. Confirm the servicer's required process.
If original value is $500,000, the 80% balance is $400,000. A $410,000 balance is 82% on that basis, even if a website now estimates the house at $600,000. Appreciation uses a different cancellation path.
Automatic termination is generally scheduled
For covered loans, the general automatic termination point is the scheduled date the balance reaches 78% of original value, provided payments are current. Extra principal payments don't simply rewrite that statutory scheduled date. They may instead support an earlier borrower request.
There is also a midpoint termination rule for covered loans when you are current. These federal protections have coverage conditions and exceptions. FHA insurance and lender paid insurance don't follow the same cancellation framework.
Keep the original PMI disclosure and ask the servicer for the scheduled cancellation and termination dates. That turns a vague expectation into a specific review.
Appreciation can support a different request
Fannie Mae permits borrower initiated cancellation based on current value under its servicing conditions. For a one unit principal residence or second home, its published current value thresholds generally are 75% LTV between two and five years and 80% after five years. A qualifying substantial improvement exception can affect the two year requirement.
Other property categories and investors have different rules. Payment history and acceptable valuation remain important. The servicer must follow its authorized valuation process; don't order a private appraisal assuming it must be accepted.
Hypothetical example: a $390,000 balance against an accepted $520,000 current value is 75% LTV. That may satisfy the value threshold for the applicable Fannie category, but it doesn't independently establish seasoning, payment history or final eligibility.
Refinancing is one option rather than the default
If cancellation can remove $140 a month without replacing a favorable first mortgage, compare that with a refinance. A refinance could remove PMI but raise interest expense or add closing costs. The net payment might improve less than expected, or worsen.
Refinance analysis should include the new rate, costs and balance, rather than treating removal of PMI as enough reason by itself. A recast and PMI cancellation are also separate requests; one doesn't automatically complete the other.
Make a targeted cancellation request
Ask the servicer to identify the investor, insurance type, original value, current balance, applicable cancellation route, payment history requirements, valuation process and fee. Request the decision and explanation in writing.
Continue paying the required amount until the servicer confirms the change. If cancellation is denied, resolve the actual missing condition or ask for correction of a documented error. The useful goal is removing insurance under the right rule while preserving the mortgage terms that still serve you.
Common questions
How much does PMI cost?
It depends on your credit score and down payment, often from a few tenths of a percent to over 1% of the loan per year.
Can I remove PMI with a new appraisal?
Often yes after a waiting period, if your home has gone up in value. Your servicer sets the rules.
Is lender paid PMI a better deal?
It removes the monthly charge in exchange for a higher rate, and it can't be cancelled later.
When can I remove PMI?
By request at 80% of the original value, automatically at 78%, or earlier with appreciation and a new appraisal under servicer rules.
Is PMI cheaper than FHA mortgage insurance?
At good credit scores, often yes, and it can be removed.
Can I avoid PMI without 20% down?
Lender paid PMI or a single premium can replace the monthly charge.
Does PMI count in my DTI?
Yes.