Private mortgage insurance, or PMI, is one of those terms that comes up early in the homebuying conversation — and it tends to cause confusion. It is not complicated once you understand why it exists and how it functions.
What PMI Actually Does
PMI is insurance that protects the lender — not you — if you default on your mortgage. When a buyer puts down less than 20%, the lender is taking on more risk. PMI offsets that risk, which is why lenders typically require it for conventional loans with smaller down payments.
How Much Does It Cost?
PMI premiums vary based on your credit score, loan size, and how much you put down. Generally speaking, the lower your down payment relative to the home's value, the higher the premium. The cost is typically rolled into your monthly mortgage payment, so you may not think of it as a separate expense — but it is real money leaving your account each month.
PMI Is Not Forever
This is the part many buyers miss: PMI is temporary on conventional loans. Once your loan balance drops to 80% of the home's original appraised value, you can request its removal. At 78%, federal law requires the servicer to cancel it automatically. Home appreciation can also work in your favor — if your home's value rises, you may reach that 80% threshold faster than your payment schedule alone would suggest.
FHA Loans Handle This Differently
FHA loans come with their own form of mortgage insurance, called MIP (mortgage insurance premium). The rules around removal differ from conventional PMI — in many cases, MIP stays for the life of the loan unless you refinance into a conventional product once you have enough equity. This is worth understanding before choosing an FHA loan.
Weighing a Smaller Down Payment
Paying PMI to buy now, rather than waiting years to save a full 20% down payment, can make financial sense — especially when rents are high and home prices are rising. The math depends on your market, your savings rate, and how long you plan to stay. A mortgage professional can run those numbers with you.
Learn more about your loan options at First Look Home Loans — we will help you weigh the tradeoffs honestly.
