What is private mortgage insurance (PMI)?
Private mortgage insurance (PMI) is a type of insurance that conventional mortgage lenders in the United States require when a home buyer makes a down payment of less than 20% of the purchase price. It is the direct US equivalent of Canada's CMHC mortgage insurance. The fundamental purpose is identical in both countries: PMI protects the lender — not the borrower — against losses in the event of default. You pay the premium; your lender receives the protection.
PMI makes homeownership more accessible by allowing buyers to purchase a home with as little as 3% to 5% down without waiting years to save a full 20%. The trade-off is a monthly premium added to your mortgage payment for as long as PMI is required. The critical difference from Canada's CMHC: US PMI can be removed once you build sufficient equity. CMHC premiums are added to the loan balance permanently and cannot be removed from the original mortgage.
When is PMI required?
PMI is required on conventional loans when three conditions are met simultaneously:
- The down payment is less than 20% of the purchase price
- The loan is a conventional loan (Fannie Mae or Freddie Mac backed) — not FHA, VA, or USDA
- The loan is for a primary or secondary residence from a standard mortgage lender
PMI does not apply to FHA loans (which use their own Mortgage Insurance Premium system — MIP), VA loans (which have no mortgage insurance), or USDA loans (which have a guarantee fee instead). It also does not apply when the down payment reaches 20% or more.
PMI rates in 2026 — what you actually pay
According to the Urban Institute's Housing Finance Policy Center, PMI costs between 0.46% and 1.50% of the loan amount per year, based on loan size, down payment, credit score, loan type, and the PMI provider. Lower down payments and lower credit scores produce higher PMI rates. The following table illustrates typical annual rates:
| Down payment | Credit score | Typical annual PMI rate | Monthly PMI on $400,000 loan |
|---|---|---|---|
| 5% ($20,000) | 760+ | 0.46%–0.60% | $153–$200/month |
| 5% ($20,000) | 680–719 | 0.80%–1.10% | $267–$367/month |
| 10% ($40,000) | 760+ | 0.30%–0.50% | $100–$167/month |
| 10% ($40,000) | 680–719 | 0.55%–0.80% | $183–$267/month |
| 15% ($60,000) | 760+ | 0.20%–0.35% | $67–$117/month |
| 19% ($76,000) | Any | 0.20%–0.46% | $67–$153/month |
How PMI is calculated — a worked example
Purchase price: $500,000. Down payment: 10% ($50,000). Loan amount: $450,000. Credit score: 720. Estimated PMI rate: 0.65% per year.
- Annual PMI cost: $450,000 × 0.65% = $2,925 per year
- Monthly PMI payment: $2,925 ÷ 12 = $243.75/month
- Total mortgage payment: Principal + interest + property tax + insurance + $243.75 PMI
PMI is calculated on the original loan amount, not on the current outstanding balance. As you pay down the mortgage, the PMI rate stays fixed as a percentage of the original loan — but the cancellation trigger is based on the current loan balance relative to the original home value.
When does PMI end? The two cancellation rules
The Homeowners Protection Act of 1998 (HPA) establishes two mandatory PMI cancellation triggers for conventional loans:
| Rule | Trigger | Who initiates | Requirement |
|---|---|---|---|
| Borrower-requested cancellation | Loan balance reaches 80% LTV of original purchase price | You must request in writing | Good payment history; no second liens; lender may require current appraisal confirming value has not declined |
| Automatic cancellation | Loan balance reaches 78% LTV of original purchase price per the amortization schedule | Lender must cancel automatically | Based on scheduled amortization, not actual payments — making extra payments speeds this up |
| Midpoint cancellation | Loan reaches the halfway point of its term (year 15 on a 30-year loan) | Lender must cancel automatically | Even if LTV is still above 78%, PMI must end at loan midpoint |
If home values in your area have increased significantly since purchase, you may be able to reach 80% LTV faster than the amortization schedule suggests. Contact your servicer to request a new appraisal — if the current appraised value supports 80% LTV or better, you can request early PMI cancellation.
PMI vs FHA MIP — a critical distinction
PMI applies only to conventional loans. FHA loans use a different system called Mortgage Insurance Premium (MIP) with important differences:
- Upfront MIP: FHA charges 1.75% of the loan amount at closing (or rolled into the loan), which conventional PMI does not
- Annual MIP rate: For 30-year FHA loans with less than 10% down and loan amounts up to $726,200, the annual MIP is 0.55% — lower than typical PMI for borrowers with lower credit scores
- Duration: FHA MIP with less than 10% down stays for the life of the loan — it cannot be cancelled. With 10% or more down, FHA MIP cancels after 11 years. Conventional PMI cancels at 78–80% LTV regardless of down payment amount.
For a borrower with a strong credit score (720+) and 10% down, conventional PMI is almost always preferable to FHA MIP because PMI will eventually cancel and the upfront cost is lower. For borrowers with lower credit scores (below 620), FHA's lower annual MIP rate may be cheaper than conventional PMI despite the upfront premium.
How to reduce or avoid PMI
Four strategies exist for conventional loan borrowers who want to minimise or eliminate PMI:
- Put 20% down: The simplest approach. A 20% down payment eliminates PMI entirely from day one. On a $400,000 home, the difference between 10% and 20% down is $40,000 in additional upfront cost but eliminates ~$200/month in PMI.
- Piggyback loan (80-10-10): Take a first mortgage for 80% of the purchase price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down in cash. The first mortgage stays below 80% LTV, so no PMI is required. The second mortgage carries a higher rate than the first.
- Lender-paid PMI (LPMI): The lender pays the PMI premium in exchange for a slightly higher interest rate on your mortgage. There is no monthly PMI line item, but the higher rate persists for the life of the loan — you cannot cancel it as you would standard PMI.
- Request removal early: Once you believe your loan balance is at or below 80% of the current home value (not original purchase price), order an appraisal and submit a written cancellation request to your servicer.
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