What Is PMI? How Mortgage Insurance Works

Private mortgage insurance, or PMI, is insurance you might have to buy on a conventional loan when the down payment is less than 20 percent of the purchase price. The Consumer Financial Protection Bureau says PMI protects the lender, not you, if the payments stop. The same requirement usually applies when a conventional refinance leaves equity under 20 percent of the home's value.

By the YourHomeCosts editorial desk. Last updated October 20, 2026. How we checked this: the sources below were read on October 20, 2026, and the hypothetical arithmetic was recomputed from the inputs shown. General information, not personal advice.

Educational information only. This is not financial, tax, legal, lending, insurance, or appraisal advice. Loan documents, state law, and your servicer or assessor control. Confirm every figure before you act.

What does PMI cover?

The CFPB’s PMI page, last reviewed August 28, 2023, says PMI is arranged by the lender and provided by private insurance companies. It insures the lender against loss caused by a borrower who stops paying. If you fall behind, PMI does not protect you, and you can still lose the home through foreclosure. The insurer can make the lender whole after a foreclosure sale comes up short. That payment is not a benefit paid to you, and it does not bring the loan current.

PMI can help a borrower qualify for a loan that might otherwise be unavailable. The same page says it increases the cost of the loan. This site does not quote a PMI premium. The CFPB’s mortgage-insurance page, last reviewed August 28, 2026, says PMI rates vary by down payment and credit score, and that they are generally lower than FHA premiums for borrowers with good credit. That is the CFPB’s comparison, not a rate from a named insurer, and the page does not publish one national dollar premium. Neither does this one.

The premium is also not homeowners insurance and not property tax. Those bills are often paid from an escrow account. A higher tax or insurance deposit is a different reason for a higher monthly payment, which is what the payment explainer separates. Paying extra principal changes how fast the balance falls. That is the subject of paying off a mortgage faster. Ending the premium has its own timing rules.

How is PMI paid?

The most common way to pay is a monthly premium added to the mortgage payment. The CFPB says that premium appears on page 1 of the Loan Estimate and the Closing Disclosure, in Projected Payments. A one-time premium paid at closing appears on page 2, in section B. Some loans use both an up-front premium and a monthly premium. The up-front piece is on page 2, section B, and the monthly piece is back on page 1, in Projected Payments. If you pay up front and then move or refinance, the CFPB says you might not get that premium back.

A lender may offer more than one of those structures. The CFPB says to ask for the total cost over a few timeframes that match how long you might keep the loan: a short one, a long one, and the one you think is likely. That comparison is between offers you actually receive. It is not a ranking this site can make, and it is not a recommendation to buy a policy from a named insurer. Ask the loan officer to show the premium on the disclosure, not only in a conversation.

The full-payment calculator adds taxes, insurance, and a PMI line to principal and interest. Any PMI figure there is an input or a planning estimate on that page, not a premium looked up for your loan. Do not treat it as the price a mortgage insurer would charge. The number that controls is the one on your Loan Estimate.

When does PMI go away?

On many conventional loans for a principal residence closed on or after July 29, 1999, the CFPB’s cancellation page, last reviewed August 28, 2026, says you can ask the servicer to cancel borrower-paid PMI when the balance is scheduled to reach 80 percent of the home’s original value. The servicer generally must end it when the balance is first scheduled to reach 78 percent, if you are current. Those percentages are shares of original value, not of today’s price. 12 U.S.C. § 4902 is the statute behind the request, the automatic stop, and a final stop at the midpoint of the loan. The full conditions, including payment history, are on how to remove PMI.

Hypothetical illustration, not your loan and not a premium. Take a home with an original value of $300,000. Eighty percent of $300,000 is $240,000, which is the balance at which you can ask. Seventy-eight percent of $300,000 is $234,000, which is the balance the original schedule uses for automatic termination. Those two dollar figures are $300,000 multiplied by 0.80 and by 0.78. They are not a PMI bill, and they do not say when your own loan reaches either point. A refinance can reset original value. A cash-out refinance uses the appraisal from that new loan, which is the rule in 12 U.S.C. § 4901 for a refinance of a principal residence.

Extra payments can let you ask sooner, because the cancellation date can be based on the balance you have actually paid down to 80 percent of original value. The automatic 78 percent date, for a fixed-rate loan, follows the initial amortization schedule and does not move just because you paid extra. That distinction is why a lower balance and a canceled premium are not the same event. Read the PMI disclosure that came with the loan. It should show the first date you can ask.

How is PMI different from the interest rate?

The CFPB says some conventional loans with a smaller down payment do not require PMI, and that the tradeoff is usually a higher interest rate. Paying that higher rate can cost more or less than PMI, depending on factors that include how long you keep the home. A higher rate and a PMI premium are different charges. One is interest on the loan. The other is an insurance premium the lender arranged. Neither one is a reason, by itself, to pick a loan.

A different upfront tradeoff is mortgage discount points. Points are a fee equal to 1 percent of the loan amount per point, paid at closing in exchange for a lower rate. They are not PMI. Paying points does not cancel a mortgage-insurance requirement, and buying PMI does not buy a lower rate. If a disclosure lists both, read them as two separate lines.

The CFPB also says you might ask a tax adviser whether paying more interest or paying PMI affects your taxes differently. This page does not give that tax answer. It also does not say that a 20 percent down payment is the right amount of cash to bring to closing. The CFPB notes that 20 percent down is the point at which PMI is not required on a conventional loan, and that the rate may be lower as well. Saving to that point is one option the CFPB names. It is not an instruction from this site.

Is PMI part of PITI?

PITI is principal, interest, taxes, and insurance. On the CFPB’s PITI page, the insurance in that name is homeowners insurance. PMI is not one of those four letters. The CFPB’s total-payment page, last reviewed August 28, 2023, writes the full monthly payment as principal plus interest plus mortgage insurance, if it applies, plus escrow for homeowners insurance and tax. Mortgage insurance sits on top of PITI when the loan has it. What is PITI walks through that split.

If the loan has no escrow line on the Loan Estimate, taxes and insurance are still household costs. They are just not inside the payment you send the lender. PMI, when it is charged monthly, is usually inside the payment you do send. Looking only at principal and interest will understate the check. The CFPB says that surprise is common, and that the estimated total is in Projected Payments on page 1 of the Loan Estimate.

Which loans use a different kind of mortgage insurance?

The Homeowners Protection Act defines private mortgage insurance as mortgage insurance other than insurance made available under the National Housing Act, title 38, or title V of the Housing Act of 1949. In plain language, FHA, VA, and USDA programs sit outside that definition. The statute is 12 U.S.C. § 4901. The cancellation dates on the removal page are about borrower-paid PMI on the loans that definition covers. They are not the rules for every low-down-payment program.

The CFPB’s mortgage-insurance page says mortgage insurance is typically required on FHA and USDA loans, that FHA insurance is required on all FHA loans, and that it includes an upfront cost and a monthly cost. It says the FHA price is the same regardless of credit score, with only a slight increase for down payments of less than 5 percent. If the upfront FHA fee is rolled into the loan because you do not pay it in cash, the CFPB says the loan amount and the overall cost both increase. A USDA loan is described as similar and typically cheaper, with a charge at closing and a monthly charge, and with the same option to roll the upfront portion into the loan.

A VA-backed loan uses a funding fee rather than a monthly mortgage insurance premium. The CFPB says that fee varies with the type of military service, the down payment, disability status, whether the loan is a purchase or a refinance, and whether you have used a VA loan before. The fee can also be rolled into the loan, which increases the amount borrowed. This page does not quote a funding-fee percentage, because the CFPB page describes the factors and does not print one figure that fits every borrower.

The same CFPB page says a piggyback second mortgage is sometimes offered instead of mortgage insurance, and that a structure marketed as cheaper is not automatically cheaper. Compare the total cost of the offers in front of you. This page does not tell you to take a conventional loan, an FHA loan, a USDA loan, a VA loan, or a second mortgage. If you are behind on payments, the premium is not the first problem. The CFPB points borrowers in that spot to a housing counselor. Nothing on this page is an application for insurance or for a loan.

Questions people ask

What is PMI on a mortgage?

The CFPB describes PMI as insurance a borrower might have to buy on a conventional loan with a down payment under 20 percent of the purchase price. It protects the lender if the borrower stops paying. It does not protect the borrower from foreclosure.

Does PMI protect me if I miss payments?

No. The CFPB says PMI insures the lender, not you. Falling behind can still damage your credit and can still end in foreclosure.

Does this page quote a PMI premium?

No. The CFPB pages cited here say PMI rates vary. They do not publish one national premium. The $300,000 illustration shows 80 percent and 78 percent of a hypothetical original value. It is not a premium and not your loan.

Sources checked October 20, 2026

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