What Is PMI and How Can You Avoid Paying It?

If you are buying a home with less than 20% down on a conventional loan, private mortgage insurance is likely in your future. For many buyers this is an unwelcome surprise that adds $100 to $400 or more per month to the payment. Here is exactly what PMI is and every way to handle it.

What Is PMI

Private mortgage insurance is a policy that protects the lender — not you — in the event you default on the loan. When you put less than 20% down, the lender takes on additional risk, and PMI compensates for that risk. You pay the premiums but receive no direct benefit from the coverage.

PMI applies to conventional loans with less than 20% down. It is distinct from FHA's Mortgage Insurance Premium — FHA MIP works differently and is required for the life of the loan in most cases.

How Much Does PMI Cost

PMI rates typically range from 0.2 to 2.0% of the loan amount annually depending on credit score, down payment, and loan size. For a well-qualified borrower, a common range is 0.5 to 1.0% annually.

Example: On a $400,000 loan at 0.7% PMI — $2,800 per year or roughly $233 per month added to your payment.

Ways to Avoid PMI at Origination

Put down 20% or more. Use a piggyback loan structure — 80% first mortgage, 10% second mortgage, 10% down — avoiding PMI on the first mortgage entirely. Choose a lender-paid PMI option where the lender covers PMI but charges a slightly higher rate. Use a portfolio loan without PMI requirements.

How to Remove PMI You Already Have

Under the Homeowners Protection Act, you can request PMI cancellation when your loan balance reaches 80% of the original purchase price. Lenders must automatically cancel PMI at 78% LTV based on the original amortization schedule. If your home has appreciated significantly, a new appraisal showing 80% LTV can support early cancellation.

At East Coast Mortgage, we help buyers structure financing to minimize or eliminate PMI from the start. Submit your scenario and we will explore every option.