PMI and Mortgage Insurance: Complete Guide

Private Mortgage Insurance (PMI) protects the lender — not you — if you default. Despite paying the premiums, you get no benefit from this coverage. But it's the mechanism that lets you buy with less than 20% down, and understanding it saves you real money.

When it's required

• ▸Conventional loans with less than 20% down require PMI.
• ▸FHA loans have their own version — MIP (Mortgage Insurance Premium) — that works differently.

How much it costs

Typically 0.5%–1.5% of the loan amount annually, depending on credit score, loan-to-value ratio, and lender. On a $350,000 loan at 1%: $292/month added to your payment. A higher credit score meaningfully lowers your PMI cost — another reason to optimize your credit before applying.

FHA MIP vs. conventional PMI

• ▸Conventional PMI is cancellable — it drops off automatically at 78% loan-to-value, or you can request removal at 80%.
• ▸FHA MIP stays for the life of the loan on most cases. The only exit is usually refinancing into a conventional loan once you reach 20% equity.

This single difference can make a conventional loan cheaper than FHA within a few years, even when FHA starts with a lower rate.

How to get rid of PMI

1. Reach 20% equity through principal paydown and appreciation — request cancellation in writing (you may need a new appraisal).
2. Automatic termination at 78% LTV on conventional loans (for loans originated after 2013).
3. Refinance into a conventional loan — common path for FHA borrowers who've built equity.
4. Make extra principal payments to accelerate equity and shorten the wait.

Should you wait for 20%?

Often, no. PMI is temporary (on conventional loans). Buying sooner with PMI means years of appreciation and principal paydown that usually outweigh the PMI cost. The PMI Strategy tool projects exactly when your PMI falls off and compares total cost against waiting to save 20% — with your real numbers, not rules of thumb.