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What Is Private Mortgage Insurance?
Private mortgage insurance is insurance commonly associated with conventional mortgages when the borrower makes a smaller down payment or has a higher loan-to-value ratio.
PMI protects the mortgage lender or investor against part of the loss if the borrower stops making payments. It does not insure the borrower against job loss, disability, property damage or foreclosure.
PMI can still be useful because it may allow a qualified buyer to purchase a home sooner instead of waiting to accumulate a 20% down payment.
What Affects the Cost of PMI?
PMI premiums are risk-based and vary from one borrower and transaction to another.
Credit Profile
Credit score and credit history can materially affect PMI pricing.
Loan-to-Value Ratio
A higher LTV generally represents a smaller equity position.
Loan Amount
PMI premiums are commonly calculated in relation to the mortgage balance.
Occupancy
Primary residences, second homes and investment properties may be treated differently.
Property Type
Single-family homes, condominiums and multi-unit properties can have different pricing.
Debt-to-Income Ratio
The complete underwriting profile may influence available mortgage-insurance options.
Ways PMI May Be Paid
The premium structure can affect both closing costs and the monthly payment.
| PMI Structure | How It Works | Tradeoff |
|---|---|---|
| Monthly borrower-paid PMI | A monthly premium is added to the mortgage payment. | Lower upfront cost, but a higher monthly payment while PMI remains. |
| Single-premium PMI | A larger premium is paid upfront, sometimes by the borrower or through an eligible contribution. | Lower monthly payment, but more cash is needed at closing and refunds may be limited. |
| Split-premium PMI | Part is paid upfront and the rest monthly. | Balances upfront cash with a smaller monthly premium. |
| Lender-paid mortgage insurance | The lender pays the insurance cost, usually in exchange for a higher interest rate. | No separate monthly PMI line item, but the higher rate may last for the life of the loan. |
How to Remove PMI
Several paths may be available depending on the loan, payment history and property value.
Borrower-requested cancellation
For many qualifying conventional mortgages, a borrower may request cancellation when the principal balance reaches 80% of the home’s original value and other requirements are satisfied.
Automatic termination
PMI generally must terminate automatically when the scheduled principal balance reaches 78% of the original value, provided the loan is current and covered by the applicable rules.
Final termination
In certain situations, PMI may terminate at the midpoint of the amortization schedule if it has not already ended and the borrower is current.
Current-value review
Some servicers or investors permit cancellation based on a new appraisal and current value after seasoning and payment-history requirements are met.
Refinance
A new conventional mortgage may eliminate PMI if the new loan-to-value ratio and underwriting profile support a no-PMI loan.
Can Home Appreciation Help Remove PMI?
Appreciation may reduce the current loan-to-value ratio, but it does not automatically cancel PMI. The servicer or investor may require a minimum loan age, satisfactory payment history, an appraisal or another approved valuation, and a specific current-value LTV.
Improvements may also support a higher current value, but the appraiser must determine how the market recognizes those improvements.
Contact the mortgage servicer before ordering an appraisal. The servicer controls the cancellation process and may require its own valuation provider.
Common PMI Myths
Private mortgage insurance is often confused with other mortgage costs.
| Myth | Reality |
|---|---|
| PMI protects the homeowner. | PMI protects the lender or investor against part of the loss if the borrower defaults. |
| PMI always lasts for the entire loan. | Many conventional borrowers can eventually cancel or automatically terminate PMI. |
| FHA mortgage insurance is PMI. | FHA mortgage insurance is a government program with different premiums and removal rules. |
| A 20% down payment is always the best choice. | The best down payment depends on cash reserves, payment goals, pricing and the borrower’s overall plan. |
| Appreciation automatically removes PMI. | Appreciation may help, but the servicer must approve cancellation under its requirements. |
Related Mortgage Resources
Continue learning about down payments, equity and mortgage qualification.
Metropolitan Mortgage Corporation
NMLS #227722
Serving Kansas and Missouri
This page and estimator are provided for general educational purposes and are not a mortgage-insurance quote, commitment to lend or determination of eligibility. Actual premiums, cancellation requirements and program terms vary.