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.
A cost and target example (illustrative example, not a quote)
You buy a $500,000 home with 10% down. The loan is $450,000. If PMI is priced at an assumed 0.5% a year, the annual cost is $450,000 × 0.005 = $2,250, or $187.50 a month. Your targets are measured against the original value of $500,000: you can request cancellation at a balance of $400,000 (80%), and the servicer must end PMI automatically at $390,000 (78%) if you are current. That is $50,000 of principal to reach the request point.
How to request cancellation
- Find your target balance. Multiply the original value by 0.80 and compare it to your current principal balance.
- Call or write your servicer. Ask for their written cancellation requirements; each servicer has its own process.
- Show a good payment history. You generally need to be current, with no recent late payments.
- Confirm there are no junior liens. A second mortgage or HELOC can stand in the way.
- Order an appraisal if you rely on appreciation. If the value rose, a new appraisal can support removal sooner than the original schedule.
Other ways to structure the premium
| Option | How it works | Trade-off |
|---|---|---|
| Monthly PMI | Added to each payment | Cancellable on the schedule above |
| Lender-paid PMI | Cost built into the rate | No monthly line, but the higher rate stays |
| 80-10-10 | First, second, and 10% down | A second payment and a separate rate to manage |
Some programs offer other structures too. Terms vary by program and borrower profile, and we confirm the current guidelines when we review your scenario.
Mistakes to avoid
- Assuming PMI drops off by itself at 80%. You have to ask.
- Paying for an appraisal before you check what your servicer requires.
- Comparing offers on rate alone and ignoring the PMI line in the payment.
Frequently asked questions
Does PMI cancel on its own at 80%?
No. At 80% you have to ask. The automatic stop is at 78%, so asking early saves months of premiums.
Why is my PMI different from a friend’s?
Credit score, loan-to-value, coverage level, and loan type all affect the premium, so two loans of the same size can differ.
Can I deduct PMI?
Tax rules change and depend on your situation. Consult a tax professional.
Related guides
- Down payment options
- Refinancing to remove PMI
- Conventional loans and mortgage insurance
- Payment calculator with PMI
Key takeaways
- PMI is required on conventional loans when LTV exceeds 80% (down payment below 20%).
- Annual PMI cost generally ranges from 0.2% to 1.5% of the loan amount.
- You can request cancellation once your balance reaches 80% of the original property value.
- PMI automatically terminates at 78% LTV — servicers are legally required to cancel it.
- Conventional PMI is cancellable; FHA MIP with less than 10% down is not.
- Lender-paid PMI (LPMI) eliminates the monthly premium but results in a permanently higher rate.
- On a $450,000 loan at an assumed 0.5% rate, PMI costs about $187.50 a month.
- A written request, a clean payment history, and no junior liens are the usual starting points.
- Automatic termination at 78% only applies when you are current on payments.
Ready to explore your conventional loan options? Lendia can walk you through what you qualify for and find the right program for your goals.