Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is a fee US borrowers pay when they put down less than 20% on a conventional mortgage. The insurance protects the lender — not the borrower — against default, but the cost is borne by the borrower. PMI typically runs 0.3% to 1.5% of the loan amount annually, depending on credit score and down payment size, paid monthly as part of the mortgage payment.

A few critical mechanics:

• Automatic termination: lenders must cancel PMI automatically when the loan reaches 78% loan-to-value based on the original amortisation schedule, regardless of actual home value.
• Borrower-requested cancellation: at 80% LTV based on original value (or current appraisal, depending on the lender), the borrower can request cancellation in writing.
• Government loans don’t use PMI: FHA loans charge MIP (Mortgage Insurance Premium) instead — structurally similar but harder to remove, often staying for the life of the loan. VA loans charge a one-time funding fee but no ongoing PMI/MIP.

PMI is not tax-deductible for tax years 2022 onward (the deduction expired). Pre-2022 it was deductible for many filers as an itemized deduction.

Practical math: on a $400,000 mortgage at 0.7% PMI, you’re paying $2,800 a year — $233 a month — until you cross the 78% LTV threshold. Use the mortgage repayment calculator to model PMI alongside principal, interest, taxes and insurance.