What is PMI? It’s private mortgage insurance — a monthly charge added to many conventional loans when a borrower puts down less than 20%. It doesn’t protect you; it protects the lender if you default. The good news is it’s not permanent. Once your loan balance drops to a certain percentage of your home’s value, PMI either falls off automatically or you can request that it be removed. I walk clients through this constantly in Phoenix and Denver, where home values have moved enough over time that some people are sitting on more equity than they realize — and paying PMI longer than they need to.
What Is PMI, Exactly?
What PMI is, at its core, is a risk offset. When you finance more than 80% of a home’s purchase price with a conventional loan, the lender is carrying more risk than it would at a lower loan-to-value ratio, so it requires mortgage insurance to cover part of that exposure. It’s billed monthly as part of your payment (sometimes it’s paid upfront or through a lender-paid structure, but monthly is the most common setup I see). PMI is specific to conventional loans — FHA loans use a different, longer-lasting charge called MIP, and VA loans don’t carry it at all. If you’re weighing loan types in Scottsdale, Sacramento, or Omaha, that distinction alone can change which program makes more sense; our overview of conventional loans is a good starting point.
When Does PMI Apply?
PMI typically kicks in whenever your down payment on a conventional loan is under 20%. That’s it — there’s no credit score or income threshold that waives it on its own. Some common scenarios:
- A first-time buyer in Colorado putting 5% or 10% down on a starter home
- A move-up buyer in California who used most of their cash for the down payment and closing costs
- A refinance where the new loan amount comes in above 80% of the appraised value
If you’re trying to avoid PMI altogether rather than drop it later, the main lever is down payment size — and for some buyers, down payment assistance programs or gift funds can help get there. We cover eligibility specifics in our first-time buyer programs guide for Arizona, California, Colorado, and Nebraska.
What Does PMI Actually Cost?
I won’t quote a number here, because what PMI costs is something that varies by credit score, loan-to-value, loan type, and the mortgage insurer’s own rate sheet — but qualitatively, it tends to run in a modest range as a percentage of the loan amount per year, split into monthly installments. On a $400,000 loan, for example, that might translate to a real monthly add-on that’s noticeable but not enormous — the kind of amount that matters over a 30-year term but isn’t usually a deal-breaker for buyers who need the lower down payment to get into a home sooner. Credit score matters more than people expect here: a stronger score can meaningfully lower your PMI rate even at the same loan-to-value, which is one more reason it’s worth tightening up your credit before you apply.
Automatic Cancellation at 78% LTV
Under the Homeowners Protection Act, your servicer is required to automatically cancel PMI once your loan balance is scheduled to hit 78% of the home’s original value — based on your amortization schedule, rather than the home’s market value — as long as you’re current on payments. You don’t have to do anything for this to happen; it’s a servicer obligation. That said, “automatic” assumes your payment history is clean and your loan is on its normal schedule, so it’s worth double-checking your statements as you approach that mark rather than assuming it’ll just disappear on its own. Understanding how your balance declines over time helps here too — our piece on how a mortgage amortization schedule works breaks down why early payments barely touch principal while later ones chip away faster.
Requesting Cancellation at 80% LTV
You don’t have to wait for the automatic 78% trigger. Once your loan balance reaches 80% of the original value — or sooner, if your home has appreciated and you want to use a new appraisal to prove it — you can request cancellation directly. The request process generally involves a written request to your servicer, a clean payment history, and often a new appraisal or broker price opinion to confirm the home’s value (the servicer may require you to cover that cost). This is where rising home values in markets like Phoenix or parts of California can genuinely work in your favor: if your equity has grown faster than your amortization schedule alone would suggest, you may be able to drop PMI years ahead of the automatic date. For the step-by-step mechanics of making that request, see our guide on how to get PMI removed from your monthly payment.
Not sure how close you are to the 80% mark? Run your numbers through our mortgage calculators to estimate your current loan-to-value and see roughly when PMI cancellation could be within reach.
Refinancing as a Way Out of PMI
Sometimes the faster path off PMI isn’t waiting — it’s refinancing into a new loan once your equity supports it, especially if rates have also moved in a direction that helps your payment. That’s not automatically the right move for everyone; refinancing has its own closing costs, and if you’re close to the 80% mark anyway, a straight cancellation request is usually cheaper than a full refinance. I tell clients to run the break-even math before committing either way — our refinancing breakdown walks through when it actually pencils out versus when it doesn’t.
FAQ
Does PMI protect me as the borrower?
No. PMI reimburses the lender’s losses if you default — it provides no benefit or payout to you directly, even though you’re the one paying for it.
Can I avoid PMI with less than 20% down?
Sometimes, through lender-paid PMI structures (built into the rate instead of a separate monthly charge) or piggyback second loans, though both carry their own trade-offs worth discussing with a loan officer before you choose one.
Does PMI apply to FHA or VA loans?
No — FHA loans use a separate mortgage insurance premium (MIP) with different cancellation rules, and VA loans don’t require mortgage insurance at all. You can read more about how mortgage insurance programs compare at the Consumer Financial Protection Bureau’s mortgage insurance explainer.
This article is general education, not financial advice or a commitment to lend. Loan programs, terms, and availability are subject to credit approval and may change. Loanatik LLC is an Equal Housing Lender. See our licensing & disclosures.