What Is PMI and How Do You Get Rid of It?

If you bought a home with less than 20% down, there's a good chance you're paying private mortgage insurance every single month. PMI is one of those costs that's easy to overlook when you're excited about getting into a house — but it can add $100 to $400 or more to your monthly payment, depending on your loan size and credit score. That's real money going out the door every month, and none of it builds equity.

Here's exactly what PMI is, why lenders require it, and how to get rid of it as fast as legally possible.

What PMI Actually Is

Private mortgage insurance is a policy that protects your lender — not you — in the event that you default on your loan. When you put down less than 20%, the lender sees you as a higher-risk borrower. If you stop making payments and the home goes into foreclosure, the lender may not recover the full loan amount through the sale. PMI covers that gap.

You pay the premiums, but the insurer pays the lender if things go wrong. This arrangement allows lenders to approve lower down payment loans they might otherwise decline — which is genuinely useful for getting into a home sooner. But it's also a cost worth eliminating the moment you're eligible.

How Much Does PMI Cost?

PMI typically costs 0.2%–2% of your loan amount annually, depending on your credit score, loan size, and down payment. On a $300,000 loan, that's $600–$6,000 per year, or $50–$500 per month. Most borrowers with decent credit and a 10%–15% down payment end up somewhere in the $100–$200 per month range.

Unlike your principal and interest payments, PMI contributions don't reduce your loan balance. You're paying for insurance you'll never personally benefit from. That's why eliminating it is worth the effort.

When Does PMI Automatically Cancel?

Under the federal Homeowners Protection Act (HPA), your lender is required to automatically cancel PMI when your loan balance reaches 78% of the original purchase price — meaning you've built 22% equity based on your original purchase price, not current market value. This happens on a scheduled date based on your amortization, assuming you've stayed current on payments.

You can also request cancellation at 80% LTV (20% equity) without waiting for the automatic date. To do this, you typically need to submit a written request to your servicer, have a good payment history, and in some cases, confirm the home's current value hasn't dropped below the original purchase price.

How to Get Rid of PMI Faster

Make Extra Principal Payments

Every extra dollar you pay toward principal brings you closer to the 20% equity threshold. Even small amounts — an extra $50 or $100 per month directed to principal — accelerate your timeline meaningfully. Use our amortization calculator with the extra payment fields to see exactly how much faster you'd hit 80% LTV.

Request a New Appraisal

If your home's value has increased since you purchased it, you may already have 20% equity even if you haven't paid down enough principal to reach the threshold on paper. You can pay for a new appraisal (typically $300–$500) and request PMI cancellation based on the updated value. Most lenders require you to have made at least two years of payments before they'll accept a new appraisal for this purpose.

In markets where home values have risen significantly, this is one of the fastest and most cost-effective ways to eliminate PMI. A $450 appraisal that cancels $150/month in PMI pays for itself in three months.

Refinance Your Loan

If you refinance into a new loan at 80% LTV or below, the new loan won't require PMI. This makes sense if interest rates have dropped enough to justify the refinancing costs, or if your home has appreciated enough that the new loan would be at or below 80% of the current appraised value. Run the numbers carefully — refinancing has upfront costs that take time to recover. Our refinance calculator can help you find the break-even point.

Make a Lump Sum Payment

If you receive a windfall — a bonus, tax refund, or inheritance — applying it directly to your principal can push you past the 80% threshold in one move. Contact your servicer, confirm how to apply the payment to principal only, then submit the written cancellation request once the balance is confirmed.

FHA Loans Are Different

It's important to know that FHA loans don't have PMI — they have their own mortgage insurance called MIP (Mortgage Insurance Premium). The rules are different and significantly less favorable. If you put down less than 10% on an FHA loan, MIP stays for the entire loan term — 30 years. It doesn't cancel when you reach 20% equity the way PMI does on conventional loans.

This is one reason many financial advisors suggest using FHA to get into a home, then refinancing to a conventional loan once you've built enough equity. Once you cross 20%, a conventional refinance eliminates MIP entirely.

The Bottom Line

PMI isn't the end of the world — it's a cost that enables lower down payment homeownership. But it's also a cost with a clear exit strategy. Know where your LTV stands, make extra principal payments when you can, watch your home's value, and request cancellation the moment you're eligible. Most homeowners who stay on top of this can eliminate PMI several years before the automatic cancellation date — and the savings are absolutely worth the paperwork.