What Is PMI and How Does It Work

Put less than 20% down on a conventional loan and you will often see a line item called PMI — private mortgage insurance. It protects the lender if you default. It does not protect your equity, and it is not homeowners insurance. The PMI calculator turns the annual rate your lender quotes into an estimated monthly cost. That rate is an input from your quote, not a fixed national price.

Who usually pays it

On many conventional loans, PMI shows up when loan-to-value (LTV) is above 80% — in plain terms, a down payment under 20% of the value used for the loan. Piggyback seconds, lender-paid PMI, and lender overlays can change the picture.

FHA loans use mortgage insurance premiums (MIP). VA loans generally use a funding fee. USDA loans use a guarantee fee. Those are different products with different rules — do not treat them as “PMI by another name.”

A quick cost example

A common educational estimate: annual PMI = loan amount × annual PMI rate, then divide by 12. On a $320,000 loan at an example 0.50% annual PMI rate, that is $1,600 a year, or about $133 a month. Real pricing depends on credit, LTV, occupancy, and the insurer. Some policies are a flat monthly premium; others can change as the balance falls.

Getting rid of PMI: 80% request vs 78% automatic

On many conventional mortgages, you can ask the servicer to cancel PMI once the principal balance hits 80% of the home’s original value — loan current, and other requirements met. PMI generally terminates automatically when the scheduled balance reaches 78% of original value, again if the applicable rules are met. Those thresholds come from the Homeowners Protection Act framework as the Consumer Financial Protection Bureau explains them. They are not a blanket promise for every loan, including lender-paid PMI.

Asking to cancel based on a current appraisal (not original value) is a separate request and is not guaranteed. Our calculators estimate current LTV from the numbers you enter; they do not auto-drop PMI inside the amortization schedule. See methodology for that limit.

What PMI is not

PMI does not lower your interest rate by itself. It does not insure your down payment. A bigger down payment can remove the PMI line, but it also uses cash you might need for closing costs, reserves, or other debts. Weigh that tradeoff in the full housing-payment calculator and in how much house you may be able to afford.