Private mortgage insurance adds tens of thousands of dollars to the cost of a conventional loan over its life. The good news is that it does not last forever — by federal law it has to come off once your loan-to-value ratio drops far enough. The trick is knowing the rules and acting on them, because lenders do not always remove it automatically at the moment you qualify.
What is PMI and why do you pay it?
Private mortgage insurance (PMI) is a policy that protects the lender, not you, if you default on a conventional loan with a loan-to-value (LTV) ratio above 80% — meaning you put down less than 20%. Lenders require it because loans with small down payments are statistically more likely to default. You pay the monthly premium; the lender collects the benefit. PMI is not the same as homeowners insurance, which protects the property, and it is not the same as the MIP on FHA loans (covered below).
PMI comes off once your loan balance drops below 80% of the original property value — but the exact rules differ depending on whether you wait for automatic termination or request it yourself.
How much PMI costs
PMI typically costs 0.3% to 1.5% of the original loan amount per year, depending on your credit score, down payment, and loan type. The cost is added to your monthly payment. Here is a rough guide for a $400,000 30-year loan:
| Credit Score | 5% Down PMI Rate | 10% Down PMI Rate | 15% Down PMI Rate |
|---|---|---|---|
| 760+ | 0.54% | 0.37% | 0.24% |
| 720-759 | 0.76% | 0.53% | 0.35% |
| 680-719 | 1.05% | 0.74% | 0.49% |
| 620-679 | 1.55% | 1.09% | 0.72% |
On a $400,000 loan with 5% down and a 720 credit score, PMI at 0.76% costs about $253/month — about $3,000 per year. Over the years it takes to reach 78% LTV through normal payments, that adds up to $10,000-$20,000. Getting it removed early is a real savings.
The 78% automatic-termination rule
Under the Homeowners Protection Act of 1998 (HPA), your lender must automatically cancel PMI when your loan balance reaches 78% of the original property value — provided you are current on payments. The lender has to drop PMI the month after you hit that threshold, no request required.
The 78% is measured against the original value (the lower of the purchase price or appraised value at closing), not the current value. So if your home appreciates, the 78% rule will not speed up automatically — you have to request removal based on the new value (see below).
There is one catch: if you have a high-risk loan (interest-only, or the lender flagged it at origination), the 78% rule may not apply. Ask your lender which rule governs your loan.
The 80% request rule
Once your loan balance reaches 80% of the original value, you have the right to request PMI cancellation. The lender is not required to do it automatically — you have to ask, and the lender can require proof that the value has not declined and that you have a good payment history.
This is the rule to use if your home has appreciated and you want PMI removed before the balance naturally hits 78%. If you bought two years ago, your home is up 10%, and your balance is at 85% of the original value, the new LTV based on current appraised value might already be under 80%. You request removal based on current value; the lender orders an appraisal at your expense (usually $450-$700); if it confirms the value, PMI comes off.
Step-by-step: how to remove PMI
- Check your current LTV.Pull your most recent mortgage statement to see the principal balance. Divide by the original purchase price (or appraised value at closing). If it's under 80%, you qualify to request removal.
- Confirm you meet the requirements. Most lenders require: at least 2 years of on-time payments, no second liens (HELOCs, second mortgages), and the property as your primary residence. Investment properties and second homes have different rules.
- Submit a written request. Call your servicer and ask for the PMI removal process. They will send a form. Submit it in writing, keep a copy.
- Pay for the appraisal. The lender will order an appraisal to confirm current value. You pay for it (usually $450-$700). If the appraisal supports an LTV under 80%, PMI is removed the following month.
- Verify PMI is removed.Check your next mortgage statement. The PMI line should be gone. If it is not, follow up in writing and escalate to the servicer's complaint line.
FHA mortgage insurance is different
FHA loans carry mortgage insurance premiums (MIP), not PMI, and the rules are different and harsher:
- FHA loans with 3.5% down (most common): MIP lasts for the entire life of the loan. The only way to remove it is to refinance into a conventional loan once your LTV reaches 80%.
- FHA loans with 10%+ down: MIP can be removed after 11 years.
- FHA loans originated before June 3, 2013:Different rules — MIP could be cancelled at 78% LTV. Check your origination date.
Because of the life-of-loan MIP on most FHA loans, many FHA borrowers refinance to a conventional loan as soon as their equity allows. Use the refinance calculator to see if the savings from dropping MIP justify the closing costs of a refinance.
The appraisal and home-value rules
When you request PMI removal based on current value, the lender will require a new appraisal — you cannot use Zillow or a broker's price opinion. The appraisal has to support an LTV under 80%. If the home has not appreciated enough, the appraisal comes in low and you keep paying PMI until the balance reaches 78% of the original value.
Some lenders require an LTV of 75% or lower if the removal is based on a new appraisal rather than amortization, especially in markets they consider volatile. Check your lender's specific policy before paying for the appraisal.
Refinancing to drop PMI
If rates have dropped since you bought, refinancing into a new conventional loan can accomplish two things at once: lower your rate and drop PMI (assuming the new appraisal supports 80% LTV or better). The math is the same as any refinance: compare the monthly savings (rate reduction + PMI removal) against the closing costs to find your break-even.
On a $380,000 loan at 6.75% with $300/month PMI, refinancing to 5.75% with no PMI saves about $440/month (rate) + $300/month (PMI) = $740/month. If closing costs are $6,000, break-even is 8 months. That is one of the strongest refinance cases there is. Use the refinance calculator to run your numbers.
Bottom line: PMI comes off automatically at 78% LTV (original value), but you can usually get it off sooner by requesting removal at 80% based on a new appraisal — especially in a rising market. FHA MIP is different and often lasts for the life of the loan, making a refi to conventional the only path off of it. Track your LTV, request removal the moment you qualify, and verify it on your next statement.