If you’re buying a home with less than 20% down, you’ll probably run into three letters that quietly add to your monthly payment: PMI. It’s one of those costs nobody explains until it’s already on your loan estimate. So let’s clear it up — what PMI is, why you’re paying it, how much it costs, and the legitimate ways to avoid or get rid of it.
What PMI actually is
PMI stands for Private Mortgage Insurance. Here’s the key thing to understand: it protects the lender, not you. When you put down less than 20% on a conventional loan, the lender sees more risk (you have less equity), so they require you to pay insurance that covers them if you default. You pay the premium; they get the protection.
It’s an added monthly cost with no direct benefit to you — which is exactly why people want to avoid or remove it.
Why you pay it
The magic number is 20% equity. With less than 20% down, lenders consider the loan riskier, so PMI is the price of getting in with a smaller down payment. Put 20% down (or build 20% equity later), and the risk — and the PMI — goes away. So PMI isn’t a punishment; it’s the trade-off that lets you buy sooner without saving a full 20%.
How much does PMI cost?
PMI typically runs about 0.3% to 1.5% of the loan amount per year, depending on your credit score and down payment. On a $250,000 loan, that’s roughly $60 to $300+ a month added to your payment. The lower your down payment and credit score, the higher the PMI. See how it stacks on top of your principal, interest, taxes, and insurance in the Mortgage Calculator.
How to avoid PMI
There are a few legitimate ways:
- Put 20% down. The cleanest way — no PMI from day one. (More in How Much Down Payment Do You Need.)
- VA loans: eligible veterans and service members can get loans with no down payment and no PMI.
- Lender-paid PMI: some lenders bake the cost into a slightly higher interest rate instead of a separate PMI line. It can look cheaper monthly, but you may pay more over the life of the loan — compare carefully.
- “Piggyback” loans: a second loan to cover part of the down payment, avoiding PMI. These add complexity and their own costs.
For many buyers, accepting PMI temporarily and removing it later is the smartest path — because waiting years to save a full 20% has its own cost.
How to get rid of PMI later
The good news: PMI on a conventional loan isn’t forever. You can typically remove it as you build equity:
1. Request cancellation at 20% equity. Once you’ve paid your loan down to 80% of the home’s original value, you can ask your lender to cancel PMI.
2. Automatic termination at 22%. By law, lenders must automatically drop PMI once you reach 78% of the original value (22% equity), assuming you’re current on payments.
3. Refinance or re-appraise. If your home’s value has risen, a new appraisal or refinance might show you already have 20% equity.
So paying extra toward principal, or simply time and rising home values, can end PMI faster. The U.S. Consumer Financial Protection Bureau explains your cancellation rights at consumerfinance.gov.
Is paying PMI ever worth it?
Often, yes. If saving a full 20% would take years — during which home prices and rents keep rising — buying sooner with PMI and removing it later can come out ahead. PMI is a temporary cost, not a permanent one. The key is to have a plan to reach 20% equity and cancel it.
Frequently asked questions
What is PMI?
Private Mortgage Insurance — a fee you pay (usually monthly) when you put less than 20% down on a conventional loan. It protects the lender, not you.
How do I avoid PMI?
Put 20% down, use a VA loan if eligible, or consider lender-paid PMI or a piggyback loan (weighing their costs). For many buyers, accepting PMI and removing it later is fine.
How do I get rid of PMI?
Request cancellation at 20% equity; it’s automatically removed at 22% equity. Extra principal payments or a higher home value (via refinance/appraisal) can speed this up.
How much is PMI per month?
Often $100–$200 on a typical loan, but it ranges with your down payment and credit score (roughly 0.3%–1.5% of the loan per year).
The takeaway
PMI is Private Mortgage Insurance you pay when you put less than 20% down — it protects the lender and adds roughly $100–$200 a month to a typical payment. Avoid it with 20% down or a VA loan, or accept it temporarily and cancel it once you reach 20% equity. Factor it into your real monthly cost with the Mortgage Calculator before you buy.
General educational information, not financial advice. Talk to a licensed lender about your loan.
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