What Is PMI? Cost, How It Works and How to Get Rid of It

By the Duvora Tools team · November 8, 2026 · 6 min read · How we write our guides

PMI (private mortgage insurance) is an extra monthly charge most lenders add to a conventional mortgage when your down payment is less than 20%. It protects the lender — not you — if you stop paying. PMI typically costs about 0.3% to 1.5% of the loan amount per year, so on a $360,000 loan that's roughly $90 to $450 a month. The good news: on a conventional loan, PMI doesn't last forever. You can ask to cancel it once your balance reaches 80% of the home's original value, and it must end automatically at 78%.

Is PMI tax deductible in 2026?

For many US homeowners, yes again. The One Big Beautiful Bill Act, signed in July 2025, reinstated the deduction from 1 January 2026 by treating mortgage insurance premiums — PMI, FHA MIP, VA funding fees and USDA guarantee fees — as qualified mortgage interest. It only helps if you itemize deductions rather than taking the standard deduction, the usual mortgage interest limits apply, and sources disagree on whether higher incomes are phased out. Check IRS Publication 936 for the current rules before you count on it.

Why PMI exists

A small down payment means the lender has less of a cushion if the home has to be sold after a default. PMI covers part of that risk, which is why lenders are willing to approve loans with as little as 3%–5% down. In other words, PMI is the price of buying sooner with less cash. For many buyers that trade-off is worth it, especially when saving 20% would take years while prices and rents keep rising.

How much does PMI cost?

The rate depends mainly on your credit score, down payment (loan-to-value ratio), loan type and debt-to-income ratio. Higher credit scores and bigger down payments get lower rates.

See how PMI fits into your full payment — with property tax and insurance — in the mortgage calculator. It adds PMI automatically when your down payment is under 20%.

Worked example

You buy a $400,000 home with 10% down, so you borrow $360,000 on a 30-year mortgage at 6.5%.

• Principal and interest: about $2,275 a month.
• PMI at 0.6%: about $180 a month.
• Your balance reaches 80% of the original value ($320,000) after about 95 months — just under 8 years. That's when you can request cancellation.
• It reaches 78% ($312,000) after about 109 months — around 9 years, when PMI must end automatically if you're current on payments.
• Paying PMI until automatic cancellation would cost roughly $19,600 in total.

When does PMI end? The 80% and 78% rules

In the US, the Homeowners Protection Act sets clear rules for conventional loans on a primary residence:

1. Request cancellation at 80%. When your balance is scheduled to reach (or you pay it down to) 80% of the home's original value, you can ask your servicer in writing to cancel PMI. You'll typically need a good payment history, no second mortgage on the home, and sometimes proof the home hasn't lost value.
2. Automatic termination at 78%. When your balance is scheduled to reach 78% of the original value, PMI must end automatically, as long as you're current on payments.
3. Final termination. PMI also ends at the midpoint of the loan term (for example, after 15 years on a 30-year loan) if you're current, even if the other thresholds haven't been reached.

"Original value" means the lower of the purchase price or the appraised value when you bought — not today's value. To use a higher current value, see the appraisal option below.

Five ways to get rid of PMI faster

1. Make extra principal payments

In the example above, adding $200 a month toward principal brings the balance to 80% in about 64 months (5.3 years) instead of 95 — and saves around 2.5 years of PMI. Make sure extra payments are applied to principal.

2. Request cancellation as soon as you hit 80%

Don't wait for automatic termination at 78%; that extra 2% can mean another year or more of payments. Put a reminder in your calendar based on your amortisation schedule.

3. Get a new appraisal if your home has gained value

If your home's value has risen, your loan may already be below 80% of the current value. Many lenders will cancel PMI based on a new appraisal, often after you've had the loan for at least two years and with a lower threshold (such as 75%) if it's been less than five years. Ask your servicer for its exact rules before paying for an appraisal.

4. Refinance

If rates have fallen and you have at least 20% equity, refinancing into a new loan can remove PMI. Compare closing costs with the PMI and interest you'd save.

5. Make home improvements that add value

Major renovations can raise appraised value, but only do them for their own sake — they rarely pay for themselves just to remove PMI.

FHA mortgage insurance (MIP) is different

FHA loans use mortgage insurance premiums (MIP) instead of PMI, and the rules are stricter:

Example: an FHA loan of $386,000 (3.5% down on a $400,000 home) has an upfront premium of about $6,755 and annual MIP of about $177 a month at 0.55%. FHA can still be the right choice for buyers with lower credit scores or smaller savings, but plan for how you'll eventually refinance out of MIP.

Is it better to wait until you have 20% down?

Not necessarily. Compare:

• Cost of PMI for the years you'd pay it, against
• the rent you'd pay while saving the extra, and any change in home prices while you wait.

With 5% down on the same $400,000 home, the loan is $380,000 and PMI at 0.6% is about $190 a month; reaching 80% of the original value would take roughly 10 years without extra payments. If saving the extra 15% would take you many years, buying sooner with PMI and paying extra later can make sense. If you're close to 20%, waiting a few months may be worth it. Use our guide on how much house you can afford to check that the payment including PMI fits your budget, and the compound interest calculator to see how fast your savings would grow while you wait.

PMI vs other "mortgage insurance" you may hear about

• Homeowners insurance protects you against damage to the home (fire, storms, theft) and liability. Lenders require it, and it continues for as long as you own the home.
• PMI protects the lender if you default on a conventional loan with a small down payment.
• Mortgage protection life insurance is optional cover that pays off the mortgage if you die. It's often more expensive than ordinary term life insurance, so compare before buying.

Other ways to avoid PMI

• Lender-paid mortgage insurance (LPMI): the lender pays PMI in exchange for a higher interest rate. There's no monthly PMI line, but you can't cancel it — the higher rate lasts for the life of the loan unless you refinance.
• Piggyback loan (80-10-10): a first mortgage for 80%, a second loan for 10%, and 10% down. It avoids PMI but the second loan usually has a higher rate.
• VA loans (for eligible service members and veterans) don't require monthly mortgage insurance, though most have a funding fee.
• Some lender or state programmes for first-time buyers reduce or waive mortgage insurance.

Key takeaways

Rules described are for US mortgages and can change. Check your loan documents and ask your servicer or a qualified mortgage adviser about your specific loan.

Frequently asked questions