What Is PMI?
PMI shows up on a lot of mortgage paperwork, and it’s often misunderstood as protecting the homeowner. It doesn’t — it protects the lender.
What PMI Actually Covers
Private mortgage insurance is generally required on conventional loans when the down payment is less than 20% of the home’s value. It exists to protect the lender in case the loan defaults, since a smaller down payment means the lender is taking on more risk relative to the home’s value. It does not protect you, the borrower, in any way — it’s purely a lender protection built into the cost of financing with a smaller down payment.
How Much PMI Typically Costs
PMI cost varies based on factors like your loan-to-value ratio, credit score, and loan type, and it’s usually added to your monthly mortgage payment. It can also sometimes be paid as a one-time upfront premium or a combination of upfront and monthly, depending on how the lender structures it and what the borrower prefers.
How to Get Rid of PMI
Unlike FHA mortgage insurance, which can last for the life of the loan in many cases, PMI on a conventional loan is generally removable once you reach a certain amount of equity in the home — typically once your loan balance drops to around 80% of the home’s value, whether through regular payments, extra principal payments, or appreciation. The specific process for requesting removal, or for it to happen automatically at a certain point, depends on your loan servicer’s rules.
Avoiding PMI Altogether
The most direct way to avoid PMI is putting down at least 20% on a conventional loan. Some borrowers also use other structures, like a piggyback second mortgage, to avoid PMI while still financing with less than 20% down — though that approach comes with its own tradeoffs worth discussing directly with a loan officer.
Frequently Asked
What is PMI?
PMI, or private mortgage insurance, is insurance required on many conventional loans with less than 20% down. It protects the lender, not the borrower, if the loan defaults.
Can PMI be removed once I've paid down my mortgage?
Yes. PMI on a conventional loan can generally be removed once you reach a certain amount of equity, either through payments, appreciation, or both, though the exact process depends on your loan servicer's requirements.
Is PMI the same as FHA mortgage insurance?
No. PMI applies to conventional loans and is generally removable once enough equity is built. FHA mortgage insurance follows different rules and, depending on the down payment and loan origination date, can last for the life of the loan.
Have Questions About Your Situation?
Every borrower’s situation is different. Talk to a Coltrain Mortgage loan officer to see how this applies to you.
Find Your Loan Officer Call (631) 851-4420