PMI: What It Costs, What It Is, and How to Remove It Early

PMI protects the lender — not you — if you default. Yet you're the one paying for it. On a $350,000 loan, PMI can cost $1,750–$5,250/year depending on your credit score and down payment. And many homeowners keep paying it for years after they're eligible to cancel. Here's how to stop.

What PMI actually costs by credit score and down payment

Three ways PMI ends — and your rights under federal law

The Homeowners Protection Act (HPA) of 1998 created legal rights to PMI cancellation that many homeowners don't know they have.

1. Automatic cancellation at 78% LTV (you do nothing)

By law, your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — based on your scheduled payment date. No action required. But this uses the original value — not current market value — and follows the schedule, not extra payments.

2. Request cancellation at 80% LTV

You can request cancellation when your balance drops to 80% of the original value. This is faster than waiting for automatic cancellation. Requirements: good payment history (no 30-day lates in the past year), the property value hasn't declined. Submit a written request to your servicer.

3. Early removal using current appraised value (fastest)

If your home has appreciated significantly, you may have reached 80% LTV based on current market value even if the original purchase price doesn't reflect it. Process:

1. Order a formal appraisal ($400–$600) — the lender typically requires their own appraisal, not one you commissioned
2. Submit a written cancellation request with the appraisal
3. Most servicers require the loan to be at least 2 years old for this route

On a home purchased for $400,000 in 2022 that's now worth $520,000 with a $330,000 balance: LTV is 330/520 = 63.5% — well below 80%. A $500 appraisal that removes $2,500/year in PMI pays back in 2.4 months.

FHA MIP: different rules, less favorable

FHA loans have Mortgage Insurance Premium (MIP), not PMI. The difference is significant:

• FHA loans originated after June 2013 with less than 10% down: MIP lasts the entire loan life — you cannot cancel it through equity
• The only ways to remove FHA MIP: refinance to a conventional loan, or put 10%+ down at origination (then MIP cancels at 11 years)
• FHA MIP rates: 0.55%–1.05% annually depending on loan term and LTV

FHA MIP permanence is one of the strongest financial arguments for a conventional loan when your credit score qualifies (typically 620+).

Should you put 20% down to avoid PMI entirely?

Not always. The opportunity cost of tying up an extra 10–15% of purchase price in home equity — instead of investing it — can exceed the PMI cost, especially if you can remove PMI in 3–5 years. Run the math: if PMI is $1,800/year and you'd invest the extra $30,000 in down payment at 8%, you make $2,400/year. Putting less down and paying PMI while investing the difference can be the better financial outcome.