What Is Private Mortgage Insurance (PMI) and How to Avoid It
Last updated: October 2026 · Editorial standards
Private mortgage insurance is one of the most significant hidden costs of homeownership for buyers who put less than 20% down. Here’s what it costs, why lenders require it, and how to avoid it.
What Is PMI?
Private mortgage insurance (PMI) is insurance that protects your lender — not you — if you stop making payments on your loan. Despite being a protection for the lender, you pay the premium.
PMI is required on conventional loans when your down payment is less than 20% of the home’s purchase price.
How Much Does PMI Cost?
PMI typically costs 0.5% to 1.5% of your loan amount per year, depending on your credit score, loan-to-value ratio, and lender.
Example on a $350,000 loan:
- PMI rate of 0.8%: $2,800/year → $233/month
- PMI rate of 1.2%: $4,200/year → $350/month
That’s a significant monthly cost that goes entirely to protecting the lender’s interest, not building your equity.
When Is PMI Required?
PMI is required on conventional loans when:
- Your down payment is less than 20%
- Your loan-to-value (LTV) ratio exceeds 80%
Not required on:
- FHA loans (they have their own mortgage insurance called MIP)
- VA loans (no mortgage insurance required)
- USDA loans (have a guarantee fee instead of PMI)
- Conventional loans with 20%+ down payment
Types of PMI
Monthly PMI: Added to your mortgage payment each month. Most common. Cancels automatically when you reach 20% equity.
Single-premium PMI: You pay the entire PMI amount upfront at closing. Higher upfront cost, but eliminates the monthly payment. Makes sense if you plan to keep the loan long-term.
Lender-paid PMI (LPMI): The lender pays the PMI premium but raises your interest rate. Lower monthly payment, but you can’t cancel it — the higher rate stays for the life of the loan.
Split-premium PMI: Combination of upfront and monthly payments.
How to Avoid PMI
1. Put 20% Down
The simplest solution: save enough for a 20% down payment. You’ll avoid PMI entirely from day one.
2. Piggyback Loan (80-10-10)
Take out a first mortgage for 80% of the home’s value, a second mortgage (piggyback loan) for 10%, and put 10% down. No PMI because the first mortgage stays at 80% LTV.
The second mortgage typically carries a higher rate, but may cost less than PMI depending on your situation.
3. Lender-Paid PMI
Accept a higher interest rate in exchange for the lender covering PMI. This avoids the monthly PMI line item — but the higher rate is permanent unless you refinance.
4. VA Loan
If you’re eligible, a VA loan requires no down payment and no PMI. This is the best mortgage deal available to those who qualify.
5. Physician or Professional Loans
Some lenders offer special programs for doctors, dentists, and other professionals that allow less than 20% down without PMI.
How PMI Is Calculated
Your PMI rate depends on:
- Credit score: Higher score = lower PMI rate
- Loan-to-value ratio: Higher LTV = higher PMI rate
- Loan term: 15-year loans may have lower PMI rates
- Fixed vs. adjustable rate: ARMs may have higher PMI
Your lender will provide the exact rate based on your specific situation.
Key Takeaways
PMI is a real cost that can add hundreds of dollars to your monthly payment. If you can avoid it by reaching 20% down, that’s usually the best path. If you can’t, focus on reaching 20% equity as quickly as possible so you can request cancellation.
Frequently Asked Questions
Is PMI tax-deductible? PMI deductibility has varied over the years depending on Congressional action. Check with a tax professional for the current status in your situation.
Can I roll PMI into my mortgage? Not directly — PMI is typically a monthly payment. However, single-premium PMI can sometimes be rolled into the loan amount.
Is PMI the same as homeowners insurance? No. PMI protects the lender. Homeowners insurance protects your home and belongings. Both are typically required but serve completely different purposes.
What’s the difference between PMI and MIP? PMI is for conventional loans. MIP (Mortgage Insurance Premium) is for FHA loans. MIP usually lasts the life of the loan (unless you put 10%+ down), making it harder to eliminate than conventional PMI.
