Reviewed September 2026.
Private mortgage insurance (PMI) is insurance that protects the lender (not you) when a conventional loan starts with relatively little borrower equity. Borrowers usually pay for it through a monthly premium (sometimes partially upfront). This guide covers PMI basics and common removal thresholds at a consumer level. It is not a claim-filing or underwriting manual. LTV math: Loan-to-value ratio. Program fit: FHA vs conventional.
Why PMI shows up
On many conventional purchase loans, lenders require PMI when down payment / equity is below about 20% (LTV above about 80%). Example: $360,000 loan on a $400,000 home is 90% LTV, so PMI is commonly required until equity improves.
PMI is a cost of low-down-payment conventional financing. Saving toward 20% can avoid it on many conventional paths, but low-down options exist for a reason: cash timing. Savings framing: Saving for a home down payment.
How PMI usually appears on your bill
| Form | What you see |
|---|---|
| Monthly PMI | Line item in the mortgage payment or escrow analysis |
| Upfront / single premium (less common for many borrowers) | Cash at closing or financed into the loan |
| Lender-paid variants | Often a higher note rate instead of a separate PMI line |
Read the Loan Estimate and Closing Disclosure fee sections so you know whether PMI is monthly, upfront, or rate-embedded. Closing paperwork walkthrough: How to read a mortgage Closing Disclosure. Escrow collections: How escrow works for homeowners.
When conventional PMI commonly drops
Rules are set by the loan contract, investor guidelines, and federal consumer protections for many residential mortgages. High-level patterns borrowers hear:
- Automatic termination on many standard amortizing conventional loans generally happens when the balance is scheduled to reach 78% LTV of the applicable original value, once you are current. Extra principal payments help your balance but do not by themselves move that scheduled automatic date.
- Borrower-requested cancellation is often possible around 80% LTV (about 20% equity), based on original value in many cases, with a current payment history and whatever appraisal or valuation the servicer requires.
- If home values rise a lot, some servicers allow cancellation based on a new appraisal showing enough equity on current value. That path is optional, has costs, and is not guaranteed.
Always confirm the exact cancel / terminate rules in your closing package and with the current servicer. Do not assume a Zillow estimate alone cancels PMI.
Conventional PMI vs FHA MIP (high level)
| Topic | Conventional PMI (typical story) | FHA mortgage insurance (MIP) |
|---|---|---|
| Who it protects | Lender against default loss | FHA insurance fund / lender pathway |
| Common trigger | Low down payment / high LTV | Most FHA forward mortgages carry MIP |
| Drop / cancel | Borrower-requested cancel around 80% LTV (~20% equity); automatic termination often at 78% LTV on many loans | Many FHA loans keep annual MIP for a long time or for the life of the loan depending on term and original LTV; rules change over time |
| Shopping takeaway | Ask when PMI cancels and what proof is needed | Ask how long annual MIP lasts on your FHA quote |
This is a high-level contrast, not a full FHA handbook. Program choice factors: FHA vs conventional.
Checklist
- Find whether your Loan Estimate shows monthly PMI, upfront MI, or a lender-paid structure.
- Write today’s LTV for original-value cancel: loan balance ÷ applicable original value (generally the lower of purchase price and original appraisal, or the appraisal at refinancing). Separately compute balance ÷ current value if you are exploring appraisal-based cancel.
- Call the servicer and ask for the cancel and automatic-termination thresholds in writing.
- Stay current; missed payments can block cancel requests.
- If you are still shopping loans, compare a higher down payment vs paying PMI for N years with real quotes, not slogans.
Educational only. Not personalized mortgage, insurance, or legal advice. PMI and FHA MIP rules depend on loan type, note date, and servicer policy; confirm on your documents.