Private Mortgage Insurance (PMI) is a type of insurance that protects your lender if you’re unable to make your mortgage payments. If your down payment is less than 20%, you’ll likely be required to pay PMI as part of your monthly mortgage cost. While it adds to your payment, PMI can help you become a homeowner sooner by lowering your upfront costs.
PMI is typically required by lenders when a borrower puts down less than 20% of a home’s purchase price. Since smaller down payments mean more risk for the lender, PMI helps offset that risk by covering a portion of the loan if the borrower defaults. PMI allows more people to enter the housing market without needing a large down payment.
PMI is usually added to your monthly mortgage bill. The amount varies depending on factors like your credit score, loan amount, and down payment size—but it typically ranges between 0.3% and 1.5% of your original loan amount annually. While it does increase your monthly cost, it may be worth it if it means buying a home sooner.
You don’t have to pay PMI forever. Once your loan balance reaches 80% of the home’s original value, you can request PMI cancellation. Lenders are required to automatically cancel PMI once your balance hits 78%. You can also remove PMI faster by making extra payments or refinancing once your home’s value has increased.
No, PMI protects the lender—not the borrower or the property. Homeowners insurance protects your home and belongings from damage or loss, while PMI protects the lender if you default.
Yes. The most common way to avoid PMI is to make a down payment of 20% or more. Some lender programs or government-backed loans may also waive PMI depending on qualifications.
PMI may be tax deductible, depending on your income and current tax laws. Always consult with a tax advisor to determine if you qualify for this deduction.
While PMI doesn’t protect you directly, it enables you to buy a home with a lower down payment. That can mean getting into a home faster—potentially while prices and interest rates are still favorable.
© 2025 All Rights Reserved
