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Understanding Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) allows homebuyers to qualify for a mortgage with a lower down payment. If your loan-to-value (LTV) ratio is greater than 80%—meaning you’re financing more than 80% of your home’s value—lenders may require PMI to protect against default. While PMI adds to your monthly mortgage costs, it can make homeownership possible sooner.
How PMI Works
PMI is an additional insurance policy provided by private (non-government) companies and is typically included in your monthly mortgage payment. Here’s what you need to know:
Helps You Buy with Less Down
Enables homebuyers to secure a mortgage with a lower initial investment.
Fixed Premium Structure
The cost is based on factors like LTV ratio, loan type, and term—not your personal credit history.
Typical Cost
PMI generally costs around 0.5% of the loan amount per year. On a $200,000 mortgage, that’s approximately $1,000 annually, or about $83 per month.
How to Remove PMI
PMI doesn’t have to be permanent. Federal law requires lenders to automatically cancel PMI when your loan balance falls below 78% of the original purchase price. However, you may be able to remove it sooner once you reach 20% home equity by taking the following steps:
Monitor Your Loan
Track your mortgage statements and monitor property values in your area.
Verify with an Appraisal
An appraisal can help to confirm your home’s value before PMI can be removed.
Request PMI Cancellation
Once you believe you’ve reached 20% equity, contact your lender to initiate the removal process.
Have Questions About PMI?
Our mortgage experts are here to guide you through the home loan process, including understanding PMI and when it can be removed.
Important Legal Disclosures
*All loans subject to credit approval.