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Private mortgage insurance

PMI

Updated

What is private mortgage insurance?

PMI protects the lender, not you, and is commonly required on conventional loans when the loan-to-value ratio exceeds 80%. It typically costs about 0.3% to 1.5% of the loan per year.

Private mortgage insurance questions

What is private mortgage insurance?
An insurance premium you pay that protects the lender, not you, against your default. It is normally required on a conventional loan written above 80% of the property's value.
When does PMI go away?
On a conventional loan it terminates automatically once the balance reaches 78% of the property's original value, and you can request cancellation at 80%. Both are measured against the value when the loan was written, not against what the home is worth today.
When can I get rid of PMI?
You can ask at 80% of the original value, and the lender must cancel automatically at 78% if your payments are current. Paying extra principal reaches that point sooner; appreciation does not, because the original value is the benchmark by law.
Does PMI ever come off an FHA loan?
FHA mortgage insurance follows different rules from conventional PMI and, for most loans written since 2013 with a low down payment, lasts the life of the loan. Refinancing into a conventional loan is the usual way out.
What does private mortgage insurance cover?
The lender's loss if you default and the property sells for less than the balance owed. It pays the lender; it gives you no cover at all.

What it means in practice

Under the US Homeowners Protection Act, borrowers can request PMI cancellation at 80% LTV based on the original value, and servicers must terminate it automatically at 78%.

PMI is not the same as homeowners insurance, which protects the property, or as FHA mortgage insurance premiums, which follow different and often permanent rules.

Because PMI ends partway through the loan, including it as a fixed monthly cost for thirty years overstates the true cost. This calculator can drop it automatically at the 80% threshold.

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