Understanding Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) costs between 0.19% and 2.25% of your loan amount annually, depending on your credit score and down payment (Source: MGIC and Radian PMI rate cards). On a $300,000 loan with 10% down and a 720 credit score, PMI costs about $150 per month. PMI is automatically canceled when your loan balance reaches 78% of the original home value under the Homeowners Protection Act of 1998.
PMI is a type of mortgage insurance that lenders require when a homebuyer makes a down payment of less than 20% of the home's purchase price. PMI protects the lender -- not the borrower -- in case the borrower defaults on the loan. While it adds to your monthly housing costs, PMI makes homeownership possible for millions of buyers who cannot afford a large down payment upfront.
The cost of PMI varies significantly based on two primary factors: your loan-to-value (LTV) ratio and your credit score. According to MGIC rate tables, a borrower putting 10% down with a 760+ credit score might pay just 0.41% of the loan amount annually, while someone with a 3% down payment and a 620 credit score could pay 2.25% or more. On a $315,000 loan, that is the difference between $108/month and $590/month -- a substantial impact on affordability.
When Is PMI Required?
PMI is required on conventional mortgage loans whenever the down payment is less than 20% of the home's appraised value or purchase price (whichever is lower). This means any loan with a loan-to-value ratio above 80% will carry PMI. The requirement applies to purchases and can also apply to refinances where the homeowner has less than 20% equity.
It is important to note that FHA loans have their own mortgage insurance premium (MIP), which works differently from conventional PMI. According to HUD guidelines, FHA MIP currently costs 0.55% annually for most borrowers and lasts for the life of the loan if you put less than 10% down. VA loans do not require any mortgage insurance per VA lending program rules, making them an excellent option for eligible veterans.
How to Remove PMI From Your Mortgage
The Homeowners Protection Act (HPA) of 1998 provides two key mechanisms for PMI removal on conventional loans:
- Borrower-requested cancellation: You can request PMI removal once your loan balance reaches 80% of the original home value and you have a good payment history.
- Automatic termination: Your lender must automatically cancel PMI when your loan balance is scheduled to reach 78% of the original value, based on the original amortization schedule.
- Final termination: PMI must be canceled at the midpoint of the loan term (e.g., year 15 on a 30-year mortgage), regardless of balance.
To speed up PMI removal, you can make extra principal payments each month to reach the 80% threshold faster. Use the extra payment calculator above to see exactly how much time and money you can save. Another option is to request a new appraisal if your home has significantly appreciated in value, which could push your LTV below 80% sooner than expected.
Types of Mortgage Insurance
There are several types of mortgage insurance, each with different cost structures and rules:
- Borrower-Paid PMI (BPMI): The most common type. You pay a monthly premium that is added to your mortgage payment. It can be canceled once you reach 80% LTV.
- Lender-Paid PMI (LPMI): The lender pays the PMI in exchange for a higher interest rate on your loan. The downside is that you cannot remove it -- you would need to refinance to eliminate the higher rate.
- Single-Premium PMI: You pay the entire PMI cost upfront at closing as a lump sum. This can be financed into the loan but may not be refundable if you sell or refinance early.
- Split-Premium PMI: A combination approach where you pay part upfront and part monthly, resulting in a lower monthly cost than standard BPMI.
- FHA Mortgage Insurance Premium (MIP): Required on all FHA loans, includes an upfront premium (1.75% of loan) and annual premium (typically 0.55%). Cannot be removed on loans with less than 10% down.
How Credit Score Affects PMI Rates
Your credit score is one of the most influential factors in determining your PMI rate. According to MGIC and Radian rate cards, borrowers with credit scores of 760 or higher typically receive the lowest PMI rates, while those with scores in the 620-639 range may pay four to five times more. For instance, on a 90-95% LTV loan, a borrower with a 760+ score might pay 0.41% while a borrower with a 620 score would pay 1.86% -- a difference of over $350/month on a $300,000 loan. Improving your credit score before purchasing a home can result in significant savings over the life of your mortgage insurance.
Frequently Asked Questions About PMI
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Disclaimer: This PMI calculator provides estimates based on typical industry rates. Actual PMI costs vary by lender, loan program, and other factors. Always consult with your lender for exact PMI quotes. Last updated: March 2026.