PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20%. It costs 0.5%–1.5% of your loan amount annually — on a $350,000 loan, that's $145–$437/month added to your payment, for coverage that protects the bank, not you.
What Does PMI Actually Cost?
- •Typical cost: 0.5%–1.5% of loan amount per year
- •$300,000 loan: $125–$375/month ($1,500–$4,500/year)
- •$500,000 loan: $208–$625/month ($2,500–$7,500/year)
- •PMI rate depends on credit score, down payment %, and lender
- •Higher credit score = lower PMI rate
4 Ways to Avoid or Remove PMI
- 1.Put 20% down: Eliminates PMI entirely from day one — the most straightforward solution
- 2.Wait for 20% equity: Under federal law (Homeowners Protection Act), you can request PMI cancellation when your loan balance reaches 80% of original value. Lenders must auto-cancel at 78%.
- 3.Get an 80-10-10 piggyback loan: First mortgage covers 80%, second loan covers 10%, you put 10% down — no PMI required
- 4.Lender-paid PMI (LPMI): Lender pays PMI in exchange for a higher interest rate — works if you plan to sell or refinance soon
Track your home value. If your home has appreciated significantly, you may qualify to cancel PMI earlier than the payment schedule suggests. Order an appraisal — if the LTV is now under 80%, you can request removal.
PMI is not permanent. Once you hit 20% equity (through payments + appreciation), you can eliminate it. On a $400,000 home with 5% down, that could save you $2,000–$4,000/year — worth tracking.