Private Mortgage Insurance (PMI)

A conventional Mortgage with less than 20% down leaves the lender with a thin cushion if the home has to be sold in foreclosure. PMI fills that gap: a private insurer pays the lender part of its loss. Fannie Mae’s guidelines, for example, set minimum coverage for every loan above 80% of the home’s value, so the requirement follows the loan-to-value ratio rather than a lender’s preference. Refinancing a conventional loan with less than 20% equity usually brings the same requirement.

You pay for coverage that protects someone else. If you fall behind, PMI doesn’t make your payments or stop a foreclosure, and your credit still suffers. What it buys you is access: a lender will approve a loan with a smaller down payment than it would otherwise accept.

The price depends mainly on how much you put down and on your credit score. The Consumer Financial Protection Bureau notes that other loan types, such as FHA loans, can cost more or less than a conventional loan with PMI, depending on your credit score. Your Loan Estimate shows a monthly premium on page 1, under Projected Payments, and any upfront premium on page 2, in section B.

Lenders may offer more than one payment structure for the same loan, and the choice changes both your closing costs and your monthly payment. The CFPB suggests asking the loan officer to total each option over time frames that fit your plans, because the cheapest choice depends on how long you keep the loan: a premium paid upfront is a bet that you will stay put, while a monthly premium can be dropped once you qualify. The main structures:

The Homeowners Protection Act of 1998 sets three exits for borrower-paid PMI on single-family main homes whose loans closed on or after July 29, 1999. Each is measured against the home’s original value: the lower of the contract price and the appraisal at purchase, or the appraised value at a refinance.

First, you can ask in writing to cancel on the date your balance is scheduled to reach 80% of original value, or earlier if extra payments get you there first. The servicer must agree if you have a good payment history, are current, have no second lien such as a home equity line of credit, and can show the home hasn’t lost value, typically with an appraisal. Second, PMI ends automatically on the date the balance is scheduled to hit 78%, provided you are current. Third, it must end the month after the midpoint of the loan’s term, year 15 on a 30-year loan, even if the balance is higher, as long as you are current.

After cancellation, the servicer must return any unearned premiums within 45 days. Loans the lender classed as high-risk at closing follow later dates, while Fannie Mae, Freddie Mac and other investors may allow earlier removal under their own guidelines, never later than the law allows. Because the schedule follows your amortization table, every extra dollar of principal moves the 80% date closer.

PMI is only one way to pay for a small down payment. FHA loans carry a mortgage insurance premium set by HUD. Under the schedule in Mortgagee Letter 2023-05, effective March 20, 2023, it is 1.75% of the base loan upfront plus an annual premium that lasts 11 years if you borrowed 90% of the value or less, and for the full term otherwise. The Homeowners Protection Act doesn’t apply to it, so many borrowers drop it only by refinancing into a conventional loan once they have enough home equity.

VA-backed loans replace mortgage insurance with the VA’s guarantee, usually paid for by a one-time funding fee. A piggyback second mortgage, such as a 10% loan on top of an 80% first mortgage, avoids PMI, but the second loan usually carries a higher, often adjustable rate and can complicate a later refinance. Price the same purchase each way and compare the total cost over the years you expect to keep the loan.

Yes again, for some borrowers. The One Big Beautiful Bill Act made premiums for qualified mortgage insurance deductible as home mortgage interest for tax years beginning after December 31, 2025. The deduction had lapsed after 2021, so premiums paid in 2022 through 2025 weren’t deductible. It covers private mortgage insurance and insurance from FHA, the VA and the Rural Housing Service, on debt used to buy, build or substantially improve your main home or one second home.

Three limits keep it small for most households. You must claim itemized deductions rather than the standard deduction, $32,200 for a married couple in 2026. The deduction shrinks by 10% for each $1,000, or part of $1,000, of adjusted gross income above $100,000, so it disappears once AGI exceeds $109,000; married people filing separately lose 10% per $500 above $50,000. And an upfront premium that covers later years must be spread over those years, except for VA and Rural Housing Service insurance. Policies issued before 2007 don’t qualify.