What Is PMI, and When Does It Go Away?

PMI stands for private mortgage insurance. The thing people get wrong: it doesn't protect you. It protects the lender.

When you put down less than 20%, the bank is taking on more risk — if you defaulted and they had to sell the house, a smaller down payment leaves less cushion to cover their losses. PMI is the insurance policy that covers them for that risk. You pay the premium; they're the beneficiary.

It feels a little unfair, and in a sense it is. But the trade is straightforward: PMI is the price of getting into a home without a full 20% down. For a lot of buyers, paying it for a few years beats waiting years longer to save up the difference while home prices and rent keep climbing.

PMI typically runs 0.5% to 1.5% of your loan amount per year, billed monthly. Where you land in that range depends mostly on your credit score and how small your down payment is — lower score and lower down payment push you toward the high end.

That's a real number — it's the difference between a comfortable budget and a snug one, which is exactly why the affordability calculator folds PMI into the monthly payment instead of pretending it isn't there.

This is the part worth knowing, because PMI is temporary and a lot of people pay it longer than they have to.

It drops off automatically at 22% equity.

By federal law, your lender must cancel PMI once your loan balance reaches 78% of the home's original value — assuming you're current on payments. This happens on its own, based on your regular payment schedule. You don't have to do anything.

You can request cancellation at 20% equity.

You don't have to wait for the automatic drop-off. Once you hit 20% equity (a loan balance of 80% of the original value), you can ask your lender to cancel it. You'll usually need to be current on payments and have a clean recent payment history.

You can get there faster than the schedule.

• Pay down the principal early. Extra payments shrink your balance, which moves your equity past 20% sooner. Even modest extra principal each month can pull your PMI drop-off date forward by months or years.
• Reappraise after the home gains value. If your home's market value has risen, you may already have 20% equity even if your loan balance hasn't moved much. You'll typically need to pay for an appraisal to prove it, but if the math works, dropping PMI early can pay that back fast.

Not all PMI cancels the same way. The rules above apply to conventional loans. If you have an FHA loan, the mortgage insurance (called MIP, not PMI) often can't be cancelled the same way — on many FHA loans it stays for the life of the loan unless you refinance into a conventional mortgage. If you're on an FHA loan and mortgage insurance is bothering you, refinancing is usually the real exit.

"Lender-paid" PMI isn't free. Some lenders offer to "pay" your PMI in exchange for a slightly higher interest rate. There's no free lunch — you're just trading a line item that eventually disappears for a higher rate that lasts the whole loan. Run the numbers before taking it.

PMI is the cost of buying with less than 20% down. It's usually $100–$300 a month, it protects the lender rather than you, and — on a conventional loan — it's temporary. It cancels automatically at 22% equity, you can request it gone at 20%, and you can speed that up by paying down principal or proving your home has gained value.

If you're weighing how much to put down, it's worth seeing the difference plainly: bumping your down payment up to 20% removes PMI entirely, which can be a meaningful chunk of your monthly payment.