Simple definition
PMI is insurance you pay for that protects the lender, not you. On a conventional loan, it's generally required when your down payment is less than 20% of the home's price. It's added to your monthly payment and comes off once you've built enough equity in the home.
Why it matters
PMI is a real monthly cost that buys you nothing directly — but it's also what makes buying possible years earlier than saving a full 20% would. The important part is that it's temporary. Knowing how and when it ends can put money back in your budget, and plenty of homeowners keep paying it longer than they had to.
Real-life example
You buy a $260,000 home with 10% down. PMI runs roughly $80–$150 a month on a loan that size. A few years in, between your payments and rising home values, you cross the equity threshold, request cancellation, and that amount returns to your budget every month.
Common mistakes
- Assuming PMI protects you — it protects the lender if you stop paying.
- Waiting for the lender to cancel it automatically instead of requesting cancellation once you're eligible.
- Confusing conventional PMI with FHA mortgage insurance, which follows different rules and can last the life of the loan.
- Delaying a home purchase for years to avoid PMI while rent and prices both keep climbing.
Pro tips
- Track your loan balance against the original purchase price — that ratio drives cancellation.
- You can generally request cancellation once you reach 20% equity, and it's typically required to end automatically at 22%.
- Extra principal payments reach the cancellation point sooner.
- If your home has appreciated substantially, ask your servicer what evidence they need — an appraisal may get you there early.
Related Money Dictionary terms
- Down PaymentThe upfront cash you pay toward a home's price, with the rest covered by your mortgage loan.
- Loan-to-Value Ratio (LTV)The size of your loan compared to the home's value, used by lenders to gauge risk and set terms.
- MortgageA long-term loan used to buy a home, secured by the property itself, which the lender can foreclose on if you stop paying.
- Mortgage InsuranceA charge that protects the lender if a borrower stops paying, required on certain low-down-payment and government-backed loans.
- FHA LoanA government-backed mortgage with lower down payment and credit requirements, aimed at first-time and lower-income buyers.
- Home EquityThe share of your home you truly own, equal to its market value minus what you still owe on the mortgage.
Frequently asked questions
How do I get rid of PMI?
On most conventional loans you can request cancellation once your balance reaches 80% of the home's original value, and the servicer must generally end it automatically at 78%. You'll usually need to be current on payments, and an appraisal may be required.
Is PMI tax deductible?
The deduction for mortgage insurance premiums has been available in some tax years and not others, and it phases out at higher incomes. Check the current rules or ask a tax professional rather than assuming it applies.
Does an FHA loan have PMI?
FHA loans carry their own mortgage insurance premium, which is similar in spirit but follows different rules. Depending on the loan, it can last the entire term, which is one reason people refinance out of FHA loans later.
Knowing what Private Mortgage Insurance (PMI) means is knowledge — the first half. A brick gets placed when you act on it: if you pay PMI, check your current loan balance against the home's original price.
Also builds: Housing
Sources & references
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Plain-English education — not personalized legal, tax, or investment advice.