PMI Decoded: What Mortgage Insurance Is, When It Applies And How It Ends

If you're buying with less than 20% down, you'll almost certainly run into three letters on your loan paperwork: PMI. Or, on an FHA loan, a close cousin called MIP. Mortgage insurance trips up a lot of first-time buyers because the name sounds like it protects you. It doesn't. Here's what it is, why it exists and how it differs between loan types.

What PMI Actually Is

Private mortgage insurance is a policy you may be required to buy on a conventional loan when your down payment is less than 20% of the purchase price. According to the Consumer Financial Protection Bureau:

• PMI protects the lender, not you, if you stop making payments.
• It's arranged by the lender and provided by private insurance companies.
• If you fall behind on payments, PMI doesn't stop foreclosure.

So why would anyone want it? Because PMI is what makes low-down-payment conventional loans possible. Without it, many buyers would have to save 20% before they could buy, which can take years. The CFPB puts it plainly: PMI can help you get a loan you might not otherwise be able to get, but it increases the cost of the loan.

When PMI Applies

In general:

• Conventional purchase loan, under 20% down: PMI usually required.
• Conventional purchase loan, 20% or more down: PMI not required.
• Conventional refinance with less than 20% equity: PMI usually applies here too.

There are variations. The CFPB notes some lenders offer low-down-payment conventional loans without PMI in exchange for a higher interest rate. Depending on how long you keep the loan, that trade can cost more or less than paying PMI.

How PMI Is Paid

The CFPB describes three common setups:

1. Monthly premium: the most common. It's added to your mortgage payment and shows on page 1 of your Loan Estimate in the Projected Payments section.
2. One-time upfront premium: paid at closing, shown on page 2 in section B. If you move or refinance soon after, you might not get any of it back.
3. A mix of both.

When comparing offers, ask each lender which PMI options it offers and what each would cost over the number of years you realistically expect to keep the loan.

How PMI Goes Away

Here's one of the biggest advantages of conventional PMI: it doesn't have to last forever. For many conventional loans on a primary residence, federal rules described by the CFPB give you these rights:

You Can Ask to Cancel at 80%

You can ask your servicer in writing to cancel PMI once your balance is scheduled to fall to 80% of the home's original value. You can ask sooner if extra payments get you there early. Generally you'll need a good payment history, no second liens, and possibly proof (like an appraisal) that the home hasn't lost value.

It Ends Automatically at 78%

Even if you never ask, your servicer generally must end PMI when your balance is scheduled to reach 78% of the original value, as long as you're current on payments.

It Ends at the Midpoint

PMI must also end the month after you reach the halfway point of your loan's amortization schedule (15 years into a 30-year loan), even if you haven't hit 78%, as long as you're current.

"Original value" generally means the lower of the purchase price or the appraised value when you bought. Your PMI disclosure form at closing should show the first date you can ask for cancellation. Hang on to it.

FHA Mortgage Insurance (MIP): A Different Animal

FHA loans have their own mortgage insurance, usually called the mortgage insurance premium, or MIP. The CFPB explains that FHA insures approved lenders against losses and passes the cost of that insurance on to the borrower.

Key differences from PMI:

• It's not tied to the 20% line the same way. FHA mortgage insurance applies to FHA loans broadly, not just when the down payment is under 20%.
• There's typically an upfront premium plus an ongoing monthly premium.
• Removal rules are different. The CFPB's PMI-cancellation rules don't apply to FHA loans; it tells FHA borrowers to ask their servicer. Fannie Mae's HomeReady page highlights the chance to cancel mortgage insurance at 20% equity "unlike FHA loans." In some cases, FHA premiums can last much longer than conventional PMI.

That doesn't make FHA a bad choice. Its more flexible qualifying standards may make it the right tool for some buyers. It just means you should compare the total cost of mortgage insurance over time, not only the monthly figure.

What About VA and USDA?

• VA loans don't require PMI or MIP, according to the VA. There's typically a one-time VA funding fee.
• USDA loans have their own program fees. Ask a USDA-approved lender how they work.

Should You Avoid PMI by Waiting?

Not necessarily. Saving 20% avoids PMI on a conventional loan and might get you better pricing. But waiting has trade-offs too: more months of rent, and home prices that could move either way while you save. There's no single right answer. Run the numbers both ways.

Our payment calculator has a PMI field that only applies when your down payment is under 20%, so you can see how it affects the monthly total. Ask a lender for the actual PMI rate on your scenario.

Quick FAQ

Is PMI Tax-deductible?

Tax rules change. The CFPB suggests asking a tax advisor how PMI or interest might affect your taxes.

Does PMI Protect Me If I Lose My Job?

No. PMI protects the lender. If you're worried about job loss, look at other options like an emergency fund or separate insurance products.

Can I Get Rid of FHA Mortgage Insurance by Refinancing?

Some homeowners later refinance from FHA into a conventional loan once they have enough equity. Whether that makes sense depends on rates, costs and your situation.

Where Do I See PMI on My Paperwork?

On your Loan Estimate and Closing Disclosure: monthly premiums on page 1 (Projected Payments), upfront premiums on page 2 (section B).

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This article is general education, not financial or lending advice. Loan programs and guidelines change; talk to a licensed lender about your situation.

Ready for the next step? Test a few down payment amounts in our payment calculator, and check out our pre-approval guide when you're ready for real quotes.