PMI: What It Costs and How to Get Rid of It

It insures the lender. Everything else follows from that

The Consumer Financial Protection Bureau puts it in one line: PMI protects the lender, not you, if you stop making payments. You are the policyholder in no meaningful sense. You are the payer. The insurer underwrites the lender's risk of loss on a foreclosure, collects a premium from you every month to do it, and if the worst happens it pays the lender and may pursue you for what it paid. Grasp that and the rest of the product stops being mysterious.

It explains the trigger. Lenders require PMI above 80 percent loan-to-value because that is roughly where the equity cushion stops absorbing a forced sale — the costs of foreclosure and a distressed price can eat 20 percent of a house without much effort. It explains the pricing: the premium climbs with the loan-to-value ratio and with the probability of default, which is why your credit score moves it as much as your down payment does. And it explains the incentive problem the law had to solve. Nobody in the transaction had a reason to notice when the insurance was no longer needed, because the person paying for it was not the person benefiting from it.

One more consequence is worth stating plainly, because borrowers get it wrong constantly: PMI is not life insurance, not disability cover, and not payment protection. If you lose your job, it does nothing for you. If you die, it does nothing for your family. Products that do those things exist and are sold separately. This one exists so that the lender can say yes to a small down payment, and the price of that yes is on your monthly statement.

What it costs: two variables, one grid

Take one loan and hold it fixed: a $400,000 purchase with 5 percent down, so a $380,000 loan at 6.50 percent nominal over 30 years. Principal and interest come to $2,401.86 a month by the annuity formula — the derivation lives in our article on the payment formula and is applied here rather than repeated. PMI sits on top of that payment, and its size comes from two inputs: the loan-to-value band and your credit tier. The table above runs both across the same loan.

The spread is the thing to notice. At 95 percent loan-to-value, the same $380,000 loan carries $107.67 a month for a borrower at 760 and above and $490.83 for one in the 620 to 639 band — a factor of 4.6, on a payment that buys the borrower nothing either way. Over the years it typically runs, that difference is tens of thousands of dollars. It is also the strongest argument in the whole exercise for spending three months repairing a credit file before applying, because a credit score bought with three months of tidy statements is repriced across the entire life of the insurance.

Two structures sit alongside the standard monthly premium and both change the exit maths, so read the loan estimate carefully. A single-premium policy is paid at closing, often financed into the loan, and buys no monthly line — but it also buys no refund logic worth relying on if you sell or refinance early. Lender-paid mortgage insurance is not free: the lender buys the policy and prices it into a permanently higher note rate, which means it never cancels at 78 percent or at any other point, because there is nothing on your statement to cancel. Both can be the right answer; neither is the cheap trick they are sometimes sold as.

The two exits the statute writes into the loan

The Homeowners Protection Act of 1998 defines two dates and imposes a third. The cancellation date is the date the principal balance is first scheduled to reach 80 percent of the original value on the initial amortisation schedule — or the date it actually reaches 80 percent, if you get there sooner by paying more. On that date you may request cancellation in writing, and the servicer must grant it if you have a good payment history, are current, and can show the value has not fallen below the original value and that there is no junior lien. The termination date is the date the balance is first scheduled to reach 78 percent of original value on that same initial schedule, and there the servicer must act on its own: no request, no appraisal, no conversation, provided you are current. And regardless of either, the statute forbids the insurance from being carried past the first day of the month after the midpoint of the amortisation period for a current borrower.

Run those definitions against the loan and the dates fall out. On the initial schedule for a $380,000 loan at 6.50 percent over 30 years, against an original value of $400,000, the balance first drops below $320,000 — 80 percent — in month 124, and below $312,000 — 78 percent — in month 135. That is ten years and four months, then eleven years and three months: an eleven-month gap, not the multi-year chasm the two numbers suggest at first glance. The reason is simple. Two percentage points of a $400,000 house is $8,000, and by year ten this loan is retiring principal at roughly $740 a month, so eight thousand dollars takes about eleven months to clear. The gap widens at lower loan-to-value ratios, where amortisation is slower relative to the distance: 14 months at 90 percent, 19 months at 85 percent.

So the popular framing — that the request right and the automatic right are years apart — is wrong when both are read off the same schedule. What is genuinely years apart is something else, and it is the subject of the next section: the 80 percent right can be exercised on the actual balance, not the scheduled one, and on terms that let equity you did not pay for count. At an illustrative 0.72 percent, the eleven scheduled months between the two dates cost $2,508. The months you lose by not knowing about the 80 percent right at all can cost eight times that.

Appreciation, extra principal, and what a new appraisal actually buys

The statutory clock runs on original value, which is defined as the lesser of the contract sales price and the appraised value at the time of the transaction. It does not move when your house does. That is the crucial asymmetry: your equity can grow through appreciation, but the automatic termination date cannot notice. If this house appreciates at 3 percent a year, the balance falls below 80 percent of its current value in month 49 — four years and one month — while the scheduled 78 percent termination still waits until month 135. At $228 a month that gap is 86 months and about $19,600. At 2 percent a year it is 72 months and roughly $16,400; at 5 percent a year, 101 months and about $23,000.

Here is where precision matters, because this point is misreported everywhere. The Homeowners Protection Act does not give you a right to cancel on a higher current appraisal. Its cancellation right is anchored to original value, and the appraisal it contemplates is evidence that the value has not declined below that original figure. Cancelling on the strength of an increased value is a separate, discretionary route offered by the investor that owns the loan — Fannie Mae's Servicing Guide, for instance, sets out its own seasoning periods and its own loan-to-value thresholds for a borrower-initiated termination based on a current appraisal, and those terms are stricter than a simple 80 percent. So the honest instruction is: ask your servicer what its investor allows, expect to pay for the appraisal yourself, and expect the threshold to be tougher than the statutory one.

Extra principal works differently and more reliably, because the statute explicitly contemplates it. The cancellation date is the earlier of the scheduled 80 percent date and the date the balance actually reaches 80 percent of original value. Add $200 a month to this loan and the actual balance crosses $320,000 in month 87 instead of month 124 — thirty-seven months earlier, worth about $8,400 in premiums, on top of the interest the extra principal saves in its own right. But note the trap: automatic termination at 78 percent is defined solely on the initial schedule, irrespective of the outstanding balance. Your extra payments do not move it. They move only the date on which you are entitled to ask, which is exactly why asking is the whole skill.

The loans this does not apply to

Everything above describes conventional loans carrying private mortgage insurance. Government-backed loans have their own insurance and their own rules, and the difference is not cosmetic. An FHA loan charges an upfront premium financed into the balance plus an annual premium, and whether that annual premium ever cancels depends on the loan-to-value ratio at origination rather than on the balance today — at the minimum down payment it does not cancel at all, which is a different economic animal from a policy that ends in year eleven. Our FHA article works that arithmetic through and finds the break-even against a conventional loan with PMI.

A VA loan is the other end of the spectrum: no mortgage insurance at any loan-to-value ratio, replaced by a one-off funding fee that varies with the down payment and with whether the entitlement has been used before. That is a genuinely different structure, not a discount on the same one, and it makes the comparison arithmetic worth doing properly rather than by rule of thumb. Our VA article does it. And none of the three has anything to do with a home equity line of credit, which is a second lien with a variable rate and a payment that changes shape halfway through — covered separately.

What Europe does instead, country by country

There is no European PMI, and the reason is worth stating: the risk that PMI insures still exists everywhere, but different markets have chosen different people to carry it. Broadly there are three answers. Price it into the interest rate. Guarantee it with a mutual or public body. Or refuse the loan-to-value ratio altogether. Almost every European market picks one of the three, and none of them produces the American arrangement in which the borrower buys a policy that pays the lender.

France is the clearest contrast, because it has two things that are often confused with PMI and neither of them is PMI. The lender's security is usually a caution — a guarantee bought from a mutual guarantee company rather than a mortgage registered on the property — for which the borrower pays a commission and a contribution to a mutual fund, part of which can come back at the end of a clean loan. That is genuinely the lender's protection, paid by the borrower, which is PMI's job description; but it is a guarantee, not an insurance policy, and it is priced as a one-off, not as a monthly premium tied to a loan-to-value threshold that expires. Separately, the assurance emprunteur that virtually every French loan carries insures the borrower's death, disability and incapacity — that is, it pays out on events that happen to you, which is exactly what PMI does not do. The loi Lemoine of 2022 lets a borrower cancel and replace it at any time without fee, so it behaves like a competitive market rather than a fixture. Underwriting limits set by the Haut Conseil de stabilité financière do much of the rest of the work that a high loan-to-value premium does in the United States.

Germany takes the first route and takes it purely. There is no mainstream German equivalent of PMI at ordinary loan-to-value ratios; what exists instead is the Beleihungsauslauf, the ratio of the loan to the bank's own conservatively assessed lending value, and the interest rate rises in steps as it rises. The regulatory backdrop reinforces the habit: under the Pfandbriefgesetz only the portion of a loan within 60 percent of the Beleihungswert may back a covered bond, which pushes banks to treat the tranche above that as a genuinely different, more expensive credit. The German borrower with little equity therefore pays for the risk in the rate, for the whole fixed-rate period, with no threshold at which anything falls away — and the Restschuldversicherung sometimes sold alongside a loan is an optional product covering the borrower's own risks, not a lender's loss policy, and has been the subject of consumer protection scrutiny rather than of statutory cancellation rights.

Spain, Portugal and Italy took the second route and, crucially, put the state rather than the borrower on the hook for the premium. Spain's ICO guarantee line covers up to 20 percent of the loan — reaching 25 percent for homes with a good energy certificate — for buyers under 35 and families with dependent children, letting the bank lend the full price instead of the customary 80 percent, and it is free to the buyer. Portugal's public personal guarantee, created by Decreto-Lei n.º 44/2024, covers up to 15 percent of the initially contracted principal for first-home buyers aged 18 to 35, for ten years, with a cap on the transaction value; the same borrowers sit inside Banco de Portugal's macroprudential recommendation, which allows financing up to 90 percent for a permanent own home and 80 percent otherwise. Italy's Fondo di garanzia prima casa, run by Consap for the Ministry of Economy and Finance, guarantees a share of the principal — the ordinary cover is half of it, more for priority categories — up to a capped mortgage amount. Look at those three and the American design becomes visibly a choice rather than a necessity: the same credit risk, the same 80 percent line, and the cost placed on the public purse rather than on a monthly premium the buyer pays for years. Whether that is better depends on who you think should pay; what is not in doubt is that it is different, and that the exact percentages and eligibility rules in all three schemes are revised often enough that you must check them at the source before relying on them.

Two markets outside the six do have something close to PMI, and they are worth knowing about because they show the mechanism in a European or near-European dress. In the Netherlands, the Nationale Hypotheek Garantie is a guarantee bought with a one-off premium on the loan, up to a maximum purchase price; the guarantee fund stands behind the lender, and the borrower's reward for buying it is a lower interest rate — the same trade PMI makes, but structured as a one-time cost with a rate benefit rather than a monthly premium with none. In Canada, mortgage default insurance is mandatory above 80 percent loan-to-value, is written by public and private insurers, is paid by the borrower and is usually added to the principal. Both are recognisably the American idea. Neither is a reason to assume your own market has one — the safest working assumption anywhere in continental Europe is that it does not, and that the equivalent question to ask your bank is what the interest rate does when the loan-to-value ratio crosses 80 percent.

Frequently asked questions

Does PMI pay my mortgage if I lose my job?

No. It pays the lender after you have already defaulted and the loss has been realised, and the insurer may then pursue you for what it paid. Nothing about it protects your household. Products that cover job loss, disability or death do exist and are bought separately — in France the assurance emprunteur does part of that job — but PMI is not one of them, and treating it as a safety net is the single most expensive misunderstanding attached to it.

My servicer refused to cancel at 80 percent. Can it do that?

Sometimes, and the conditions are the place to look. The statutory cancellation right is conditional: you must ask in writing, be current, have a good payment history as the statute defines it, show that the value has not fallen below the original value, and certify that no other lien encumbers the property. A second mortgage or a home equity line drawn against the house can therefore block cancellation outright. If you meet every condition and are still refused, the refusal should be in writing with a reason, and a complaint to the Consumer Financial Protection Bureau is the normal escalation.

Is it worth refinancing just to get rid of PMI?

Only if the new loan's rate and costs beat the premium you are escaping, which is an arithmetic question, not a preference. On the loan above, the premium is $228 a month; if refinancing raises the note rate by half a point on a $340,000 balance, you have paid roughly $140 a month to save $228, plus several thousand dollars of closing costs to recover. When rates have fallen since you bought, refinancing usually wins twice over. When they have risen, asking for cancellation at 80 percent — free, and available on the actual balance — is almost always the better move.

Can I deduct PMI premiums from my taxes?

Do not assume so. The federal deduction for mortgage insurance premiums has been enacted, allowed to lapse and revived several times, and it has always been limited by income. That makes it exactly the kind of figure this article refuses to state as current: check the Internal Revenue Service's own guidance for the tax year you are filing, or ask a tax preparer, before counting on it. And note that even when available, a deduction reduces the cost of the premium — it never makes cancelling it the wrong move.

Is there a PMI equivalent where I live in Europe?

Almost certainly not in the American form, and you should verify rather than assume. In France the lender's protection is usually a caution bought from a guarantee company, paid once, and the assurance emprunteur alongside it covers you, not the bank. In Germany there is no premium at all — the risk shows up as a higher interest rate as the Beleihungsauslauf rises. Spain, Portugal and Italy run public guarantee schemes for young and first-time buyers that let the bank exceed its customary loan-to-value limit at no cost to the buyer. The right question at your own bank is not whether you must buy insurance but what happens to the rate, and to the maximum you can borrow, as your deposit shrinks.

I have an FHA loan. When does my mortgage insurance stop?

Not under the rules described here — the Homeowners Protection Act governs private mortgage insurance on conventional loans, not the mortgage insurance premium on an FHA loan. The FHA premium runs for a period fixed at origination by the loan-to-value ratio at that moment, and at the minimum down payment it runs for the whole term. Paying the balance down does not shorten it. Our FHA article sets out both premiums, the duration rules and the refinance exit that is the standard way out.