What Is Private Mortgage Insurance (PMI) in Real Estate?

Private Mortgage Insurance (PMI) is a policy that protects lenders when a borrower makes a down payment of less than 20% on a conventional loan. While PMI adds to your monthly payment, it enables more buyers to qualify for a mortgage and purchase a home sooner.

✅ How PMI Works

PMI doesn’t protect you — it protects the lender. If you stop making payments, the insurer reimburses the lender for part of the loss. In exchange, you pay a small monthly premium that’s added to your mortgage payment.

  • Applies to conventional loans with less than 20% down
  • Usually costs between 0.3% and 1.5% of the loan amount annually
  • Paid monthly as part of your mortgage payment or as a one-time upfront fee
  • Automatically drops off once you reach 22% equity (by federal law)

💡 How to Remove PMI

Once you’ve built enough equity, you can request to remove PMI and lower your monthly payment. This usually happens when your loan-to-value (LTV) ratio reaches 80% or less.

  • Make extra payments toward principal to reach 80% LTV faster
  • Request a new appraisal if home values have risen
  • Refinance to a new loan without PMI if rates are favorable
  • Automatic cancellation occurs once you hit 22% equity

Removing PMI can save homeowners hundreds — even thousands — of dollars per year once sufficient equity is built.

📊 PMI vs. Mortgage Insurance Premium (MIP)

While PMI applies to conventional loans, Mortgage Insurance Premium (MIP) is required on FHA loans. Both protect lenders but differ in duration and cost structure:

  • PMI: Can be removed after building 20–22% equity
  • MIP: Typically lasts the full loan term for FHA loans with less than 10% down
  • PMI: Offered by private insurers; costs vary by credit score
  • MIP: Set by HUD and paid to the FHA directly

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