Insurance You Buy for Someone Else
Start with the fact that explains everything else: private mortgage insurance protects the lender, not you. The Consumer Financial Protection Bureau says it flatly. If you default, the insurer reimburses part of the lender’s loss. You pay the premium. The bank holds the policy.
Why would you agree to that? Because it is the toll that opens the gate. Lenders require PMI on most conventional loans with less than 20% down, and without it, low-down-payment conventional lending mostly would not exist. PMI is what lets you buy a house with 5% down instead of waiting half a decade to save 20%.
So no, PMI is not a scam. It is a fee with a job. Your job is to pay as little of it as possible, for as short a time as possible. Both are manageable.
What It Costs
Freddie Mac puts PMI at roughly $30 to $70 per month for every $100,000 borrowed. A $300,000 loan runs about $90 to $210 a month.
That is a wide range, and you control more of it than you might think. Two levers set your price:
- Credit score. PMI pricing is sharply credit-tiered. The difference between a 640 score and a 760 score can more than double the premium on the same loan. If your score is borderline, the months spent improving it pay off twice: better rate, cheaper PMI.
- Down payment. 15% down buys a much cheaper premium than 5% down. Every extra point of equity lowers the insurer’s risk and your bill.
Most borrowers pay PMI monthly, but ask about alternatives: single-premium PMI (paid once at closing) and lender-paid PMI (folded into a higher rate). Monthly is usually the right default because it cancels. A higher rate from lender-paid PMI never does.
The Escape Hatches Are Federal Law
Here is what the servicer will not call to tell you. The Homeowners Protection Act gives you cancellation rights, per the CFPB:
- At 80% of original value: you can demand cancellation. Send a written request once your balance is scheduled to hit 80% of the home’s original value. You must be current on payments, and the servicer can require proof the value has not dropped.
- At 78%: cancellation is automatic. The servicer must terminate PMI when the balance hits 78% of original value, if you are current. No request needed.
- At the loan’s midpoint: it ends no matter what. Even if the balance math has not cooperated, PMI must stop halfway through the term.
The gap between 80% and 78% is where you act. Waiting for automatic termination means months of extra premiums for nothing. Mark the date your amortization schedule crosses 80% and send the request. Ten minutes, real money.
One more accelerator. “Original value” is the purchase-era value, but if your home has appreciated, many servicers will cancel based on a new appraisal showing 20%-plus equity at current value. You pay for the appraisal, a few hundred dollars, and in a rising market it can kill years of premiums. Call your servicer and ask for their requirements in writing.
You can also speed it up the manual way: extra principal payments pull the 80% date toward you.
PMI vs. FHA Insurance: Not the Same Animal
People use “PMI” for all mortgage insurance, and the sloppiness costs money. FHA loans charge their own premiums: 1.75% of the loan upfront, plus an annual premium most borrowers pay at 0.55% per HUD’s current schedule. The structural difference: on FHA loans with less than 10% down, that annual premium runs for the life of the loan. There is no 78% trigger. The exit is refinancing into a conventional loan once you have 20% equity.
When comparing FHA against conventional-with-PMI, compare the exits, not just the monthly bills. Conventional PMI is a tenant with a move-out date. FHA insurance on a minimum-down loan signed the lease for thirty years.
The Verdict
Paying PMI to buy years sooner: usually smart. Home prices and rents do not pause while you save, and the premium cancels. Draining your emergency fund to dodge PMI: dumb math. You just traded a temporary $150 bill for zero cushion. Forgetting to cancel at 80%: free money for the insurer, and they thank you for it.
Set your down payment with the full picture in our down payment guide, price the payment with our mortgage calculator, and compare programs at the mortgages hub.