What Is PMI on a Conventional Loan — and When Can You Remove It?

Private mortgage insurance — PMI — is an added monthly cost most buyers face when putting less than 20% down. But on a conventional loan, it is not forever. Here is what it is, what it costs, and how to get rid of it.

What is PMI?

Private mortgage insurance protects the lender — not you — in the event you default. When your loan-to-value ratio exceeds 80% (down payment below 20%), lenders require PMI to offset that added risk. The premium is paid by the borrower, either monthly or through a lender-paid option where the cost is built into your rate.

When is PMI required?

PMI is required on conventional loans when the LTV ratio exceeds 80% at origination. A 10% down payment means a 90% LTV, which requires PMI.

How much does PMI cost?

Annual PMI rates generally range from 0.2% to 1.5% of the loan amount, depending on credit score, LTV, and coverage level. On a $700,000 loan at 0.6%, that is $350 per month. Borrowers with higher credit scores and lower LTVs pay less.

How and when can you cancel PMI?

Under the federal Homeowners Protection Act (HPA):

• Borrower-requested cancellation: You can request PMI cancellation once your balance reaches 80% of the original property value. You must be current on payments. A new appraisal may be required if you are relying on appreciation.
• Automatic termination: PMI must be cancelled by the servicer when your scheduled balance reaches 78% of the original value — even without a request.
• Final termination: PMI must terminate at the midpoint of the loan’s amortization schedule regardless of LTV.

Can you avoid PMI entirely?

Yes — with a 20% down payment. Some borrowers use lender-paid PMI (LPMI), where the cost is built into a slightly higher rate. Others use an 80-10-10 structure: 80% first mortgage, 10% second mortgage, 10% down. Each approach has trade-offs worth comparing for your specific situation.