What Is PMI and When Does It Drop Off Your Mortgage?
Key takeaways
- Under the Homeowners Protection Act, you can request PMI cancellation at 80% loan-to-value, and it must drop automatically at 78%.
- PMI typically costs $30 to $70 a month per $100,000 borrowed, per Freddie Mac, and it protects your lender, not you.
- FHA loans play by different rules: with less than 10% down on a post-2013 loan, MIP stays for the life of the loan.
A stone cottage on a village street, the kind of home whose mortgage may carry PMI in its early years. Photograph: Derek Harper / Wikimedia Commons
Image Credits: Wikimedia Commons / Derek Harper (stone cottage); Maigheach-gheal (Cross Keys House); Mike Faherty (Old House of Keys)
What PMI actually is
Private mortgage insurance is the monthly charge most conventional lenders require when your down payment is under 20%. Here is the uncomfortable truth about it: PMI protects the lender, not you.
If you default and the foreclosure sale does not cover the balance, the policy makes the lender whole. Your credit still takes the hit, and you still lose the home.
The Consumer Financial Protection Bureau states it plainly: mortgage insurance, no matter what kind, protects the lender in the event you fall behind. PMI is the price of buying years earlier than saving a full fifth of the price would allow.
The good news is that PMI has a legal off-switch. Federal law draws two lines on conventional loans, and most borrowers can exit well before the schedule does it for them. This article explains what PMI costs, the 80% and 78% rules, the faster appraisal route, and the exceptions that trap unwary borrowers.
What PMI costs you
PMI is not one flat fee. The rate depends on your credit score, your down payment size, and your loan amount. The Urban Institute's Housing Finance Policy Center puts the typical range at 0.46% to 1.5% of the original loan amount per year.
Freddie Mac's rule of thumb is easier to picture: roughly $30 to $70 a month for every $100,000 borrowed.
On a $300,000 mortgage, that means $90 to $210 a month, every month, on top of principal, interest, taxes, and homeowners insurance. At a 0.60% rate with good credit, about $150 a month. If PMI stays on the loan for eight years, that is over $14,000 paid for insurance that never protected you.
Your exact number is on your Loan Estimate and your Closing Disclosure, and it should show up as a line item on your mortgage statement. Borrower-paid PMI is usually fixed: it does not shrink as your balance drops, which is one more reason to cancel it the moment you qualify.
The 80% rule: request cancellation yourself
The Homeowners Protection Act of 1998 gives you the earliest exit. Once your principal balance reaches 80% of the home's original value, you can submit a written request to your servicer and have PMI removed. You have to ask; the servicer will not do it on its own at the 80% mark.
To qualify, you need to meet four conditions: submit the request in writing, have a good payment history, be current on your mortgage, and show that the property value has not declined below the original value and that no second mortgages or home equity lines are attached to the property.
"Good payment history" has a specific legal meaning here: no payments 30 or more days late in the 12 months before your request, and no payments 60 or more days late in the 12 months before that (the 13-to-24-month window). After cancellation through any path, your servicer has 45 days to return any unearned premiums you already paid.
The key strategic point: extra principal payments count toward the 80% line. Making additional payments can get you there well before the original schedule does.
The exterior of Cross Keys House, a reminder that every property has a value history that matters at cancellation time. Photograph: Maigheach-gheal / Wikimedia Commons
The 78% rule: automatic termination
If you never request cancellation, your lender must terminate PMI automatically when your balance is first scheduled to reach 78% of the original value. The key word is "scheduled."
The lender uses the original amortization schedule created when you closed the loan, not your actual balance. Extra payments that get you to 78% faster do not trigger automatic termination, though they do help you reach the 80% request threshold sooner.
There is one catch: you must be current on your payments when the termination date arrives. If you are behind, the lender keeps PMI in place until the first day of the month after you catch up. Unlike borrower-requested cancellation, automatic termination requires no appraisal, no subordinate-lien check, and no action from you.
On a $360,000 loan at a fixed rate in the mid-6% to low-7% range, common for originations in 2022 and 2023, the gap between reaching 80% and 78% through scheduled payments alone is roughly 8 to 14 months. That is up to a year of unnecessary premiums for borrowers who never file the written request.
There is also a final backstop: PMI can never extend past the midpoint of your loan term, regardless of your balance. For a 30-year mortgage, PMI drops at the 15-year mark (the first day of the 181st month). For a 15-year mortgage, it is gone at 7.5 years.
You still need to be current for this to kick in.
The faster route: a new appraisal
On loans owned by Fannie Mae or Freddie Mac, on a one-unit home you live in, you can cancel PMI based on the home's current value rather than the original value. The thresholds: 75% of current value after 2 years of payments, or 80% after 5 years. You pay for the servicer-approved appraisal, typically about $500 to $600.
This is the route that matters when home prices rise. If your home appreciated 20% since purchase, a new appraisal can show you at 75% loan-to-value even though the original schedule says you are years away. Rising home prices get borrowers out of PMI sooner than extra payments ever could.
One warning: lender-paid PMI (LPMI) cannot be canceled at all. It is built into your interest rate, so the only exit is a refinance.
The FHA exception
None of the above applies to FHA-insured mortgages. The Homeowners Protection Act governs only conventional loans. FHA borrowers pay a mortgage insurance premium (MIP) set by the Department of Housing and Urban Development under a separate framework.
For most FHA loans originated on or after June 3, 2013, with a down payment below 10%, MIP remains for the life of the loan. It cannot be canceled at 20% equity, 22% equity, or any other threshold. The only exit is refinancing into a conventional loan.
If you put down at least 10%, MIP cancels automatically after 11 years.
VA loans have no PMI at all, and USDA loans use a different guarantee-fee structure. The 80/78 rules are a conventional-loan feature.
The Old House of Keys in Castletown, a historic building whose value, like any home's, determines when mortgage insurance ends. Photograph: Mike Faherty / Wikimedia Commons
Frequently asked questions
How do I request PMI cancellation?
Send a written request to your loan servicer once your balance hits 80% of the original value. Be current on payments, and expect the servicer to verify your payment history and confirm no junior liens exist.
Will extra payments trigger automatic termination at 78%?
No. Automatic termination follows the original amortization schedule, not your actual balance. Extra payments help you reach the 80% request threshold sooner, which is the faster path anyway.
Does refinancing remove PMI?
Yes, if the new loan is at 80% loan-to-value or below. Many borrowers with FHA loans refinance into conventional loans specifically to escape lifetime MIP.
What if my home's value dropped?
A decline below the original value can block borrower-requested cancellation, since the servicer must confirm the value has not fallen. Automatic termination at 78% does not require a value check, so it still applies.
How long does PMI usually last?
Without extra payments or appreciation, a 30-year loan with 5% down reaches the 80% request point in roughly 11 years and the automatic 78% point in about 12 years. With extra payments or rising values, it can be far shorter.
The bottom line
PMI is temporary by law on conventional loans: request cancellation at 80% loan-to-value, and the servicer must end it automatically at 78%, with a hard stop at the loan's midpoint. At $30 to $70 a month per $100,000 borrowed, every month you pay after qualifying is money spent protecting someone else. The one exception to memorize is the FHA loan, where MIP can last for the life of the loan unless you refinance out of it.
This article explains mortgage rules and is not financial advice. For your own loan, check your servicer's written requirements.
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