Buying with less than 20 percent down can put homeownership within reach sooner, but it may add a monthly bill that does not build equity: private mortgage insurance. That extra cost belongs in your affordability calculation alongside interest, taxes, and homeowners insurance.
The key is to compare the cost of PMI with the cash you keep by making a smaller down payment, then understand exactly how to remove it later. A little planning at closing can prevent years of unnecessary premiums.
Why Conventional Loans Require PMI
Private mortgage insurance, or PMI, typically applies to conventional mortgages with down payments below 20 percent. It protects the lender against losses if you default; it does not protect you from missed payments or foreclosure.
PMI makes smaller-down-payment borrowing possible, but waiting to save 20 percent is not automatically the better financial choice. Putting 5 or 10 percent down may preserve emergency savings and money for repairs. Evaluate the total payment and your remaining cash, not just the size of the down payment. Reviewing different down payment options can help clarify that trade-off.
How Much Does Private Mortgage Insurance Cost?
Your PMI quote depends on factors including credit score, down payment, loan amount, loan terms, and the insurer. Generally, stronger credit and more money down can lower the premium. There is no universal rate tied to a particular credit score.
For a $300,000 mortgage, consider these illustrative annual rates: 0.3 percent would cost about $75 per month; 0.7 percent, about $175; and 1.2 percent, about $300. These are examples to show the calculation, not promises of what lenders will charge.
A borrower with excellent credit and 15 percent down may receive a much lower quote than someone with weaker credit and 3 percent down. Request actual Loan Estimates from competing lenders. Look at the monthly PMI charge as well as the complete mortgage payment.
How to Use a PMI Cost Calculator
A PMI cost calculator helps compare scenarios before you apply. Enter the purchase price, down payment percentage, credit score, and estimated PMI rate. To estimate a monthly premium, multiply the insured loan amount by the annual rate and divide by 12.
Run the numbers again with 5, 10, and 15 percent down. Add interest, property taxes, homeowners insurance, and association dues to avoid mistaking a low principal-and-interest payment for an affordable overall budget. A complete monthly mortgage payment breakdown is especially useful here.
Monthly PMI Versus Lender-Paid PMI
Most borrowers encounter monthly borrower-paid PMI, included with the regular mortgage payment. Other structures involve an upfront payment or a combination of upfront and monthly premiums. Your Loan Estimate should identify the arrangement.
With lender paid PMI, the lender generally pays the insurance premium in exchange for a higher mortgage interest rate. You may not see a separate insurance charge, but the higher rate can remain even after you have substantial equity. Unlike monthly borrower-paid PMI, lender-paid coverage generally cannot simply be canceled to lower the rate.
Compare upfront cash, the annual percentage rate, and total costs over the years you expect to own the property. A lower visible insurance bill does not always mean a cheaper loan.
How to Cancel PMI at 80 Percent
For many conventional mortgages on primary residences, federal law allows you to request PMI cancellation when your loan balance reaches 80 percent of the home’s original value. For a purchase, original value generally means the lower of the sales price or appraised value at closing.
Suppose you buy a home for $400,000, put 10 percent down, and borrow $360,000. If its original value is $400,000, the 80 percent threshold is a remaining principal balance of $320,000. Paying down $40,000 in principal brings you to that figure. Qualifying extra principal payments can help you reach it before the scheduled date.
Submit your cancellation request in writing to your mortgage servicer. You generally must be current, have a good payment history, satisfy requirements concerning second mortgages, and provide evidence that the property’s value has not fallen below its original value if requested. Your servicer may require a valuation.
Why the 78 Percent Rule Is Different
For covered loans, PMI generally ends automatically when the mortgage balance is scheduled to reach 78 percent of original value, provided you are current on payments. In the example above, that means a scheduled balance of $312,000.
The word scheduled matters: extra payments do not necessarily advance the automatic termination date. If you paid ahead, ask for cancellation instead of waiting. Federal law also provides a final termination rule tied to the midpoint of the loan’s amortization schedule, subject to payment status and applicable loan rules.
Can Rising Home Values Remove PMI Earlier?
Sometimes. Home appreciation can reduce your current loan-to-value ratio even if your principal balance has not fallen much. Certain investor and servicer guidelines permit cancellation based on current value, with conditions involving payment history, loan age, equity, and an approved valuation.
These options are distinct from the federal original-value rules. Ask the servicer who owns your loan, what equity threshold applies, and whether it must order the appraisal or other valuation. Avoid paying for your own appraisal until you know the approved procedure.
Should You Pay Extra Principal or Refinance?
Paying additional principal can shorten your PMI-paying period, but not at the expense of an adequate emergency fund. Calculate the likely months of premiums saved before committing a large lump sum.
Refinancing may eliminate PMI if your new conventional loan meets the lender’s equity requirements. However, closing costs and a higher interest rate can erase the benefit. Compare the refinance break-even point against simply requesting cancellation on the existing loan.
FHA mortgage insurance operates under different rules. Do not assume a conventional loan’s 80 and 78 percent thresholds apply to an FHA loan.
Frequently Asked Questions
Do I need PMI with 10 percent down?
Usually, yes, for a conventional purchase loan. Ask the lender for its actual premium quote and available insurance arrangements.
Does PMI end as soon as I have 20 percent equity?
Not necessarily. Cancellation at 80 percent of original value generally requires a request and eligibility checks. Automatic termination normally follows the scheduled 78 percent benchmark.
Will a higher credit score reduce my current premium?
Not automatically. Better credit may improve future loan offers, but it typically does not reprice an existing insurance contract. Check cancellation eligibility first.
Is PMI tax-deductible?
For the 2026 tax year, qualified mortgage insurance premiums may be deductible for eligible taxpayers who itemize, subject to income limits and other requirements. Confirm the applicable IRS rules for your filing year.
The Bottom Line
Private mortgage insurance can make a smaller down payment practical, but its cost should be part of the decision from day one. Compare real quotes, understand lender-paid versus borrower-paid coverage, and track your 80 percent cancellation and scheduled 78 percent termination dates. The best plan balances faster homeownership with manageable payments and enough savings for unexpected expenses.
