Private mortgage insurance (PMI) is insurance required by conventional mortgage lenders when the borrower's down payment is less than 20% of the property's value — meaning the loan-to-value (LTV) ratio exceeds 80%. PMI protects the lender — not the borrower — against financial loss if the borrower defaults on the loan and the property sells for less than the outstanding balance. Despite protecting only the lender, the borrower pays the premium.
PMI costs typically range from 0.3% to 1.5% of the original loan amount per year, with the exact rate depending on the down payment, credit score, loan type, and coverage level. On a $350,000 loan with 10% down and a 740 credit score, PMI might cost approximately $100 per month. With a 5% down payment and a 680 credit score, it could be $250 per month or more. Over several years, PMI adds up to thousands of dollars — money that does not reduce your balance or build equity.
PMI can be structured in several ways. Monthly PMI is the most common — a recurring charge added to your mortgage payment. Single-premium PMI is paid as one lump sum at closing (which can be financed into the loan). Split-premium PMI combines a smaller upfront payment with reduced monthly premiums. Lender-paid PMI (LPMI) means the lender pays the premium in exchange for a slightly higher interest rate — this eliminates the visible PMI payment but increases your rate permanently.
The good news: PMI is not permanent. Under the Homeowners Protection Act (HPA) of 1998, borrowers can request PMI cancellation when their LTV reaches 80% of the original property value (based on the original amortization schedule or actual payments). Lenders must automatically terminate PMI when LTV reaches 78%. If your home has appreciated significantly, you may be able to request early cancellation by providing a new appraisal showing the current LTV is below 80%. FHA mortgage insurance (MIP) has different rules and generally cannot be cancelled for loans with less than 10% down.
PMI costs appear on the closing disclosure and are factored into your PITI payment. At Beycome Title, we ensure PMI is accurately reflected on all closing documents. Use Beycome's mortgage calculator to see how PMI affects your monthly payment, or get your free closing quote.