PMI
Protects the mortgage lender against part of the loss risk if the borrower defaults. The borrower usually pays the premium when borrower-paid PMI is required.
BUYER MONEY GUIDE
PMI: the mortgage cost buyers often hear about too late.
Private mortgage insurance can make a lower-down-payment conventional mortgage possible. It protects the lender—not the homeowner—and it can increase the monthly payment. Just as important: for many covered conventional loans, PMI does not have to last forever.
WHAT IT ISLender protectionPMI is private mortgage insurance associated with conventional financing. It generally protects the lender if the borrower defaults.
WHEN IT MAY APPLYOften under 20% downConventional borrowers who put down less than 20% may be required to carry PMI, depending on the loan and lender/investor rules.
WHAT IT CHANGESYour monthly costPMI can be included in the total monthly mortgage payment even though it is not homeowners insurance.
First myth to kill: you do not always need 20% down.
Many conventional mortgage programs allow less than 20% down. PMI is one mechanism that can make that possible by reducing the lender's risk. The tradeoff is straightforward: a smaller down payment can preserve cash or allow an earlier purchase, while PMI adds cost.
That means “avoid PMI at all costs” is not automatically the right strategy. The better question is whether the entire financing structure fits your cash reserves, monthly budget, timeline and alternatives.
See where PMI sits relative to PITI →PMI is not homeowners insurance.
Homeowners insurance
Protects against covered property losses and liability under the policy. It is the “Insurance” component traditionally referred to in PITI.
Three PMI milestones worth knowing
80%
Borrower-requested cancellation
For many borrower-paid PMI mortgages covered by federal law, you can ask the servicer to cancel PMI when the principal balance is scheduled to reach 80% of the home's original value. You generally must request it in writing and meet the applicable payment-history, current-payment, lien and property-value requirements.
78%
Automatic termination
For many covered mortgages, the servicer generally must automatically terminate PMI when the principal balance is scheduled to reach 78% of the home's original value, provided the loan is current.
MIDPOINT
Loan-term backstop
Federal rules also provide a final termination point after the loan reaches the midpoint of its original amortization schedule if PMI has not already ended, subject to the payment being current.
“Original value” has a specific meaning.
For PMI cancellation rules under the federal Homeowners Protection Act, the CFPB explains that “original value” generally means the lower of the purchase price or appraised value when you bought the home. For a refinance, it generally means the appraised value at the time of refinancing.
Some Fannie Mae, Freddie Mac or servicer rules may allow earlier cancellation based on additional equity or current value, but those rules can differ. Do not assume appreciation alone automatically removes PMI—ask your servicer for its written requirements.
PMI is not the same thing as FHA mortgage insurance.
PMI is generally the term used for private mortgage insurance on conventional loans. FHA loans use Mortgage Insurance Premiums (MIP), and the cancellation/duration rules are different. VA financing also follows different rules. If you are comparing loan programs, compare the full payment and the insurance structure—not just the interest rate.
Where to look on your paperwork
Loan Estimate
Page 1 includes the Projected Payments section, which can show mortgage insurance and estimated escrow. Use the total—not just principal and interest—when comparing monthly affordability.
PMI disclosure
If your loan has borrower-paid PMI, the disclosure provided with the mortgage should explain when you can request cancellation and when automatic termination is scheduled to occur.
Primary references
Consumer Financial Protection Bureau — When can I remove PMI? ↗CFPB — Mortgage key terms: PMI ↗CFPB — Loan Estimate explainer ↗HUD — FHA mortgage insurance premium information ↗
Educational only: PMI and other mortgage-insurance requirements depend on the specific loan, investor, insurer and servicer. Ask the lender or servicer for the rules that apply to the actual mortgage you are considering.