PMI typically costs 0.6% of the loan balance each year, and it is pure overhead — it disappears at 78% loan-to-value, and you can ask for it off at 80%.
What PMI is and who it protects
Private mortgage insurance is a policy your lender requires when your down payment is below 20%. The lender pays a portion of your monthly payment and receives part of the money if you default. It protects the lender, not you — and because it is not tax-deductible, most borrowers want it gone as soon as legally possible.
There are two ways it ends. The automatic path: once you reach 78% loan-to-value through scheduled principal payments, the lender must cancel it and refund the balance of the premium. The faster path: reaching 80% LTV, which lets you request cancellation yourself. The gap between the two is often a year or more of payments.
How to use it
- Loan amount and home value. The loan-to-value ratio drives everything. The defaults here — a $400,000 loan on a $500,000 home — sit at exactly 80% LTV, which is the request threshold, so the default example correctly shows no PMI owed. Lower the home value or raise the loan to see a real premium.
- PMI rate. Most lenders charge between 0.5% and 1% of the loan annually, and the rate depends on your credit score and your loan-to-value. Check your Loan Estimate for the actual figure.
- Term. The longer the term, the slower the balance falls, and the longer you pay PMI.
The formula
Monthly PMI = (loan amount × annual PMI rate) ÷ 12, charged on the original loan balance for as long as you carry the policy. The calculator then amortizes your loan the same way a payment schedule does, and reports the first month your balance reaches 78% of the original value.
The two ways out, and why the gap matters
There are two exits and they are a year or more apart. At 80% loan-to-value you may request cancellation in writing; the servicer must grant it if you are current on payments and the property has no second lien. At 78% the cancellation is automatic under federal law. The gap between them on a $400,000 loan is $8,000 of balance, which at a typical schedule is roughly a year of payments — and a year of premiums you did not have to pay.
The request route is worth using. It requires a written request, proof of value if you are relying on appreciation rather than principal payments, and often an appraisal at your cost. But an appraisal is usually a few hundred dollars against a year of premiums, so it pays for itself in the first two months of most policies.
The third exit is a refinance. If rates have fallen or your credit has improved since you bought, refinancing can remove PMI and lower the payment at the same time. The break-even is the closing cost divided by the monthly saving, and it is the only comparison that matters.
Frequently asked questions
Can I get rid of PMI early?
Yes. Reaching 80% loan-to-value through extra payments lets you request cancellation; the lender must comply if you are current on payments and meet the property conditions. At 78% the cancellation is automatic, though many borrowers still have to request it.
Does refinancing get rid of PMI?
Usually — if you refinance with 20% equity, the new loan has no PMI requirement. If you refinance into an FHA or VA loan, the government insurance programs apply instead, with their own premiums and terms.
Is PMI tax deductible?
No. Mortgage insurance premiums are not deductible for most borrowers, which is a good reason to pay them only as long as necessary.