PMI (Private Mortgage Insurance)
Also known as: Private mortgage insurance
Private mortgage insurance is an insurance policy required on conventional US mortgages where the borrower puts down less than 20% of the home's value. The borrower pays the premium, but the policy protects the lender against default loss, not the borrower.
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Private mortgage insurance applies specifically to conventional mortgages — loans not insured by the federal government — where the loan-to-value ratio at origination exceeds 80%. The premium typically runs between 0.3% and 1.5% of the original loan amount per year, depending on the borrower's credit score, the loan-to-value ratio at origination, and the loan program. On a $400,000 loan, the range translates to between $1,200 and $6,000 per year, paid as a monthly addition to the mortgage payment. The premium is added to escrow rather than directly to the lender; the servicer collects from the borrower and remits to the insurer.
The federal Homeowners Protection Act of 1998 governs cancellation. A conventional borrower can request cancellation when the principal balance reaches 80% of the original purchase price or appraised value (whichever was lower at origination), and the lender is required to automatically terminate when the scheduled balance reaches 78% of the original value. Both thresholds are based on the original value, not the current value, which can leave borrowers in appreciating markets paying for years longer than the current loan-to-value ratio would justify. Most servicers also accept a borrower-initiated cancellation based on the current value, with the borrower paying for a broker's price opinion or full appraisal — typically $150 to $600. The deep guide on PMI removal walks through the four removal paths in detail.
PMI does not apply to FHA loans, VA loans, or USDA loans, each of which has its own insurance product with different rules. FHA loans carry mortgage insurance premium (MIP) that is typically required for the life of the loan when the original loan-to-value exceeded 90%. VA loans require no insurance but carry a one-time funding fee. USDA loans charge a guarantee fee that behaves differently from PMI or MIP. Conflating these products is the most common reason borrowers misunderstand whether their insurance is removable.
Private mortgage insurance is sometimes folded into the loan rate rather than paid as a separate line item. This is called lender-paid mortgage insurance (LPMI). The borrower's monthly payment looks lower because there is no PMI line, but the slightly higher interest rate bakes in the same cost. LPMI is structurally non-removable; the higher rate persists for the life of the loan even after the borrower would have qualified to cancel a standard PMI. For most borrowers, standard borrower-paid PMI is the better choice because it can be removed.
- FHA vs Conventional vs VA — which program fits which household Side-by-side mechanics: down payment, mortgage insurance, credit score floors, loan limits, and the household profile that makes each program the right pick.
- VA loans — no down payment, no PMI, lifetime entitlement explained The VA-backed mortgage for veterans and active military: funding fee math, eligibility, when it beats conventional, and the lifetime entitlement rules.
- How to remove private mortgage insurance (PMI) from your mortgage The four removal paths under the federal Homeowners Protection Act, BPO appraisal cost math, FHA MIP differences, and when refinancing out is the better move.
- What a mortgage pre-approval actually proves — and what it does not What a US mortgage pre-approval actually verifies, how long the letter lasts, how it affects your credit, and how it differs from prequalification.
- LTV (Loan-to-Value) The ratio of a loan's principal balance to the appraised value of the underlying collateral, expressed as a percentage. The primary determinant of PMI eligibility, mortgage refinance access, and rate tiering for most secured loan products.
- Mortgage A loan secured by real estate, used to finance the purchase or refinance of a home. The largest single loan most US households will ever take, typically with a 15- or 30-year amortization, fixed or adjustable rate, and various government-backed or conventional structures.
- Refinance Replacing an existing loan with a new one — typically to lower the rate, change the term, switch from variable to fixed rate, or extract equity (cash-out refinance). Subject to closing costs that must be recouped through the rate savings to make the refi worthwhile.
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