PMI: How It Works and When It Drops Off

PMI: How It Works and When It Drops Off

PMI: How It Works and When It Drops Off

Updated: October 2025

PMI how it works explained with loan to value and removal timeline
Understand PMI costs and removal at 78–80% LTV.

PMI how it works — Private Mortgage Insurance protects the lender when your down payment is under 20%. Here’s how PMI is charged, what it costs, and when it drops off—plus ways to remove it faster using extra principal or a refinance.

PMI how it works and when it drops off

PMI is typically added as a monthly premium to your mortgage payment on conventional loans with less than 20% down. It does not protect you; it protects the lender if you default. The premium depends on credit score, loan-to-value (LTV), and loan size.

How PMI is charged

  • Monthly PMI (most common): added to your mortgage payment.
  • Single-premium PMI: one upfront payment at closing (sometimes financed).
  • Split-premium PMI: smaller upfront + reduced monthly premium.
PMI costs table and factors explained in the PMI how it works guide

Typical PMI cost (ranges)

PMI commonly ranges from 0.20%–1.50% of the loan per year, driven by credit score and LTV. Illustrative ranges:

  • 95% LTV → ~0.75%–1.10% annual
  • 90% LTV → ~0.40%–0.75% annual
  • 85% LTV → ~0.20%–0.40% annual

When PMI drops off

  • Automatic at 78% LTV: Based on original value under the Homeowners Protection Act if you’re current on payments.
  • Request at 80% LTV: You may request cancellation earlier with good payment history—often requires an appraisal.
  • Refinance: If your home value increased, refinancing may remove PMI sooner.

Quick monthly example

$400,000 price, 10% down → $360,000 loan. If PMI is 0.60% annual, monthly PMI ≈ $360,000 × 0.006 ÷ 12 = $180.

How to drop PMI faster

  • Make extra principal payments to reach 80% LTV sooner.
  • Request a reappraisal if local prices rose.
  • Improve credit and consider a refinance into a lower-cost loan.
PMI removal timeline showing 80 percent LTV in the PMI how it works article

PMI vs MIP vs VA

  • PMI (Conventional): monthly, typically removable around 78–80% LTV.
  • MIP (FHA): upfront + annual; may last the life of the loan at high LTVs.
  • VA: no monthly PMI; a one-time funding fee instead.

Run your numbers

Use our tool to estimate PMI cost and removal timing with real state taxes and escrow. It takes seconds.

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Related guides

For consumer mortgage basics and insurance rules, see the CFPB mortgage resources.