What Is PMI (Private Mortgage Insurance)?

If you’re planning to buy with a down payment under 20%, you’ve almost certainly heard about private mortgage insurance, or PMI. Here’s what it actually is and why lenders require it.

What PMI is

PMI is insurance that protects the lender rather than you if you stop making payments on your mortgage. In exchange for that protection, lenders let you buy with a smaller down payment than they’d otherwise accept. It’s the tradeoff that makes a low-down-payment purchase possible in the first place.

What it costs

PMI usually runs between 0.5% and 1% of your loan amount each year. Where you land in that range comes down to a few things. A larger loan carries a higher PMI cost, a stronger credit score pulls your rate down, and the closer your down payment gets to 20%, the less you’ll pay.

How to get rid of it

The most common path is equity. Once you’ve paid the balance down to 20% equity, you can request that PMI be removed. If your home’s value has climbed, refinancing can wipe it out sooner. Some lenders also offer lender-paid PMI, where the cost is folded into your interest rate instead of billed as a separate line.

The bottom line

PMI is an added cost, but it’s also what opens the door to homeownership for buyers who don’t have 20% saved. It generally runs 0.5% to 1% a year, and you can shed it once you reach 20% equity. If you have questions about your own numbers, I’m happy to help.

Ready to learn more?

If you have questions about getting a mortgage or want to explore your options, reach out. I’m here to help guide you through every step.