Private Mortgage Insurance (PMI) Guide 2025: Costs, Requirements, and How to Cancel PMI 

Private Mortgage Insurance (PMI) is a type of insurance policy that protects your lender in case you default on your mortgage loan.  It's not for your benefit as the borrow- instead, it covers the lender's risk when you put down less than 20% of the home's purchase price.  PMI is typically required for conventional loans (those no backed by the government like FHA or VA loans) and is arranged by the lender through private insurance companies.  Think of it as a "safety net" for the lender, allowing you to secure a home loan even with a smaller down payment, but it adds an extra fee to your monthly payments.  

Unlike homeowner's insurance, which protects you against property damage, or mortgage insurance premium (MIP) for FHA loans, PMI is specifically for conventional mortgages and is provided by private lenders.  

Lenders generally require PMI if your down payment is less than 20% of the home's value.  

Government-backed loans like VA or USDA may not require PMI at all, even with 0% down for eligible borrowers.

PMI is also common in refinancing scenarios if your home equity is below 20%.  However, it's not needed for all loans - FHA loans have their own MIP, and some lenders offer options to avoid PMI through higher interest rates or other structures.

PMI costs are typically calculated as a percentage of your original loan amount and paid annually, but they're often divided into monthly payments added to your mortgage bill.  The exact rate depends on several factors:

-Down Payment Amount: Lower down payments mean higher PMI rates.

-Credit Score: Higher scores can qualify you for lower premiums.

-Loan Amount and Type: Larger loans or adjustable - rate mortgages may increase costs.

-Debt-to-Income Ratio: this can influence the rate.

-Home Value: Based on the appraised value. 

Pros:

-Enables homeownership sooner by allowing smaller down payments.

-Can be canceled once you reach 20% equity, potentially saving money long term.

-May be tax-deductible in some cases (check with a tax advisor).

Cons:

-Increases your monthly mortgage payment, adding to overall costs.

-Doesn't protect you as the borrower-only the lender.

-If not managed, it can extend the time to build equity.

Avoiding PMI:

-Save for 20% down payment to eliminate the need entirely.

-Consider government-backed loans like VA or USDA which often don't require PMI.

Canceling PMI:

-PMI must be automatically terminated when you loan balance reaches 78% of the original home value.  You can request cancellation earlier once you hit 20% equity, based on:

-Current home value (may require an appraisal).

-On-time payments and good standing with the lender. 

Track your equity by making extra principal payments or benefiting from home appreciation.  Contract your lender annually to check progress.

T-Is PMI the same as homeowner's insurance? No-homeowner's insurance covers your property, while PMI protects the lender.

-Can PMI be removed if my home value increases? Yes, if an appraisal shows you've reach 20% equity.

-How much does PMI cost on average? Expect 0.58% to 1.86% of the loan amount annually, depending on your profile.

-Is PMI tax-deductible? It can be for some borrowers- consult a tax professional.