What Is PMI and How to Avoid It
Private Mortgage Insurance (PMI) is an extra monthly cost that protects your lender — not you — if you default on your mortgage. It’s required when your down payment is less than 20% of the home’s purchase price.
How Much Does PMI Cost?
PMI typically costs between 0.5% and 1.5% of your loan amount per year, depending on your credit score, down payment, and loan type.
| Loan Amount | PMI Rate | Monthly PMI Cost | Annual PMI Cost |
|---|---|---|---|
| $240,000 | 0.5% | $100 | $1,200 |
| $240,000 | 0.85% | $170 | $2,040 |
| $240,000 | 1.5% | $300 | $3,600 |
| $380,000 | 0.85% | $269 | $3,230 |
On a $300,000 home with 10% down ($270,000 loan), PMI at 0.85% adds $191/month to your payment. Over the years until PMI drops off, that can total $10,000 to $20,000+ in extra costs.
Calculate your exact PMI cost with our PITI calculator — it automatically calculates PMI when your down payment is under 20%.
When Does PMI Go Away?
PMI is not permanent. Under the Homeowners Protection Act, your lender must:
- Remove PMI automatically when your loan balance reaches 78% of the original home value
- Remove PMI upon request when your loan balance reaches 80% of the original home value (you must be current on payments and have a good payment history)
How Long Until PMI Drops Off?
On a $300,000 home with 10% down at 6.5%:
| Down Payment | Loan Amount | Months Until 80% LTV | PMI Cost Until Removal |
|---|---|---|---|
| 5% ($15,000) | $285,000 | ~104 months (~8.7 years) | ~$16,800 |
| 10% ($30,000) | $270,000 | ~68 months (~5.7 years) | ~$10,900 |
| 15% ($45,000) | $255,000 | ~32 months (~2.7 years) | ~$5,160 |
6 Ways to Avoid PMI
1. Put 20% Down
The most straightforward approach. On a $300,000 home, that’s $60,000. Not easy, but it eliminates PMI entirely.
2. Piggyback Loan (80/10/10)
Take out two loans: a primary mortgage for 80% of the home price and a second loan (home equity loan or HELOC) for 10%, with 10% down. The second loan has a higher rate, but you avoid PMI and the interest is potentially tax-deductible.
3. Lender-Paid PMI (LPMI)
Some lenders offer to pay your PMI in exchange for a slightly higher interest rate. This can make sense if you plan to stay in the home long enough for the rate difference to cost less than PMI would have.
4. VA Loan
If you’re a veteran or active-duty military, VA loans require no down payment and no PMI — ever. This is one of the most valuable benefits available to eligible borrowers.
5. USDA Loan
For homes in eligible rural and suburban areas, USDA loans offer no down payment. They have a guarantee fee instead of PMI, which is typically lower.
6. Pay Down Principal Faster
Make extra principal payments to reach 80% LTV sooner. Even an extra $200/month can cut years off your PMI payments. Use our calculator with bi-weekly payments to see how quickly you can reach that threshold.
PMI vs. Waiting to Save 20%
This is a common dilemma for first-time buyers. Consider this comparison:
Option A: Buy now with 10% down + PMI
- Start building equity immediately
- Lock in today’s home price
- Pay ~$170/month in PMI for ~6 years = ~$12,000 total
Option B: Wait 3 years to save 20%
- Home prices may increase 3-5% per year
- A $300,000 home could cost $330,000-$347,000 in 3 years
- You miss out on 3 years of equity building
In many markets, buying sooner with PMI costs less than waiting — especially when home prices are rising.
Next Steps
Calculate your PMI costs by entering your home value, down payment, and PMI rate. The calculator shows your monthly PMI payment and total PMI paid over the life of the loan, so you can decide whether putting less down makes financial sense.
Related
- How Much Down Payment Do You Need?
- FHA vs Conventional Loan — compare PMI vs MIP costs
- Mortgage Payment on a $300K House — see PMI impact at different down payments
- 10 First-Time Home Buyer Mistakes