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PMI Explained: Cost, Cancellation & FHA MIP Compared
Quick answer
Private mortgage insurance (PMI) protects the lender — not you — if you stop making payments. It is generally required on conventional loans when your down payment is below 20% (loan-to-value above 80%). It does not protect your equity, does not pay your mortgage if you lose income, and does not benefit you directly except by making a low-down-payment loan possible at all. Under federal law you may request cancellation at 80% of original value, and the servicer must automatically terminate at 78% if you are current.
Key takeaways
- PMI is a cost of access: insurance for the lender, paid by you. It is generally required on conventional loans below 20% down.
- General range only (not a quote): roughly 0.5%–1.5% of the original loan amount per year — $125–$375/month illustratively on a $300,000 loan.
- Federal exits (Homeowners Protection Act): request cancellation at 80% of original value; automatic termination at 78% if current; midpoint backstop (year 15 on a 30-year loan).
- 'Original value' is frozen at closing — the lower of contract sales price or appraised value at purchase. Later appreciation does not change the federal 80%/78% calculation.
What PMI is — and who it protects
Private mortgage insurance (PMI) protects the lender — not you — if you stop making payments. It is generally required on conventional loans when your down payment is below 20% (loan-to-value above 80%). It does not protect your equity, does not pay your mortgage if you lose income, and does not benefit you directly except by making a low-down-payment loan possible at all. That framing matters: PMI is a cost of access, and removing it as soon as you legitimately can is usually worthwhile.
What PMI costs (general range, not a quote)
PMI rates vary by credit score, down payment, loan type, and insurer. A commonly cited general range is roughly 0.5%–1.5% of the original loan amount per year. Illustrative arithmetic on a $300,000 loan: at 0.5% per year, $1,500 ÷ 12 = $125 per month; at 1.5% per year, $4,500 ÷ 12 = $375 per month. Your actual rate comes from your lender/insurer. A lower credit score or smaller down payment generally means a higher PMI rate — unlike FHA MIP, which does not vary by credit score in the same way.
How conventional PMI ends (federal law)
For most conventional, single-family, primary-residence mortgages closed on or after July 29, 1999:
Request cancellation — principal balance scheduled to reach, or actually reaching, 80% of the original value: request in writing; be current with a good payment history; certify no junior liens; property value must not have declined (servicer may require valuation).
Automatic termination — principal balance scheduled to reach 78% of original value: nothing required — servicer must terminate if you are current; no appraisal may be required for automatic termination.
Final backstop — midpoint of the amortization schedule (year 15 on a 30-year loan): applies even if the balance has not reached the thresholds, if current.
"Original value" is frozen at closing: the lower of the contract sales price or the appraised value at purchase. Later appreciation does not change the federal 80%/78% calculation — though it can matter for a separate, lender/investor-based cancellation request using current value, which follows different rules and may require an appraisal you pay for. Do not confuse the two routes.
How FHA mortgage insurance differs
FHA MIP is not PMI: upfront premium 1.75% of base loan amount (often financed); annual premium 0.55% per year for >95% LTV 30-year loans; no federal-schedule end — below 10% down: life of the loan; 10%+ down: after 11 years. The usual exit is refinancing into a conventional loan once 20% equity plus qualifying criteria are met.
How to get PMI removed in practice
1. Find your original value and amortization schedule — your closing documents and servicer statements show both. Identify the scheduled 80% and 78% dates.
2. Track extra principal payments separately. Extra payments can bring your actual balance to 80% earlier than scheduled — but for borrower-requested cancellation based on actual payments, you must ask; it is not automatic.
3. Request in writing when you qualify, with evidence of good payment history and no junior liens. Keep copies.
4. If denied, ask for the specific reason in writing. Servicers have been found to confuse investor guidelines with federal requirements; a written reason lets you check which rule was actually applied.
5. Check your statements after cancellation — unearned premiums must be returned promptly, not held indefinitely in escrow. If PMI continues past automatic termination while you are current, escalate in writing.
Lender-paid mortgage insurance: the exception
With lender-paid mortgage insurance (LPMI), the lender pays the premium and typically charges a higher rate instead. Federal automatic-termination rules for borrower-paid PMI do not apply in the same way, and there is no monthly premium to cancel — you would need to refinance to escape the higher rate. Compare LPMI against borrower-paid PMI on total cost over your expected holding period, not on the absence of a monthly line item.
Disclosure and disclaimer
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Disclaimer: Educational only — not financial advice. PMI rules have exceptions (loan type, occupancy, investor overlays); confirm your loan's specific cancellation terms with your servicer in writing. Any specific borrower's PMI rate (general range used illustratively only); lender/investor overlays stricter than the federal floor (not stated as universal).
At a glance
| Feature | Conventional PMI | FHA MIP |
|---|---|---|
| Upfront premium | None as a separate premium | 1.75% of base loan amount (often financed) |
| Annual premium (illustrative) | Varies by credit/down payment | 0.55% per year for >95% LTV 30-year loans |
| Ends by federal schedule? | Yes — 80% request / 78% automatic | No — below 10% down: life of the loan; 10%+ down: after 11 years |
| Usual exit | Cancellation/termination above | Refinance into a conventional loan once 20% equity + qualifying criteria are met |
Conventional PMI vs FHA MIP
What this means for you
PMI buys access to a low-down-payment loan, and the federal 80%/78% exits are the way out — but only the borrower-requested route at 80% needs your action, and only on the frozen original value. Track your schedule, request in writing, and check statements after cancellation.
FAQ
Who does PMI protect?
The lender, not you. It does not protect your equity or pay your mortgage if you lose income; it makes a low-down-payment loan possible.
When can I cancel PMI?
Under the Homeowners Protection Act you may request cancellation when the balance reaches 80% of original value, and the servicer must automatically terminate at 78% if you are current, with a midpoint backstop (year 15 on a 30-year loan).
Does home appreciation remove PMI automatically?
No — 'original value' is frozen at closing (the lower of contract sales price or appraised value at purchase), so later appreciation does not change the federal 80%/78% calculation, though it can matter for a separate lender/investor-based request.
Sources
- Homeowners Protection Act of 1998 / CFPB guidance — request at 80% of original value; automatic termination at 78% if current; original value = lower of contract sales price or appraised value at purchase
- HUD MIP schedule (upfront 1.75%; annual 0.55% for >95% LTV 30-year; life-of-loan below 10% down, 11 years at 10%+ down), via secondary summaries — see HUD for the authoritative schedule
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