What Is PMI (Private Mortgage Insurance)?

The short version: PMI is insurance that protects your lender, not you — and you're the one who pays for it. It kicks in automatically if your down payment is less than 20%, and it goes away once you've paid down your loan below 80% of the original purchase price. That's really the whole concept.

Why it exists

When you put down less than 20%, you're borrowing a higher percentage of the home's value — which means if you defaulted, the lender would have a harder time recovering their money by reselling the house. PMI exists to help cover that risk for the lender. It has nothing to do with protecting you if you lose your job or can't make payments — that's a different product entirely (mortgage protection insurance, which is optional and separate).

What it actually costs

PMI typically runs somewhere between 0.3% and 1.5% of your loan amount per year, split into your monthly payment — so naturally, a larger loan means a larger dollar cost even at the same rate. Where you land within that percentage range depends mostly on your credit score and how much you're putting down — better credit and a bigger down payment both push your rate toward the lower end.

On a $320,000 loan, that's roughly $80–$400 a month, and you keep paying it every month until it comes off.

How to get rid of it

This is the part most people don't realize until years in:

• Automatic removal: Once your loan balance hits 78% of your home's original value, your lender is legally required to drop PMI — no request needed.
• Request it yourself, sooner: Once you hit 80% of the original value, you can ask your lender to remove it. This is often faster than waiting for the automatic cutoff, and a lot of people don't know they can do this.
• Refinancing can remove it too — if your home has appreciated and you now have 20%+ equity based on current value, refinancing into a new loan can drop PMI immediately, sometimes years before you'd hit it naturally on your original loan.

One distinction you should know: "80% of original value" and "80% of current value" are two different numbers, and confusing them is common. Your automatic/requestable removal is based on what you originally borrowed — not what your home is worth today.

One more thing about PMI and loan types

Not all low-down-payment loans work the same way here. FHA loans charge their own mortgage insurance, and it follows different rules — under 10% down it stays for the life of the loan no matter how much equity you build. If you're weighing an FHA loan, see how FHA's Mortgage Insurance Premium works. Either way, talk to your lender about which loan type is the best fit for your situation.