Insurance that protects the lender (not you) if you default on a conventional mortgage with less than 20% down. PMI typically costs 0.5% to 1.5% of the loan amount per year, added to your monthly payment. On a $300,000 loan, that is $125 to $375 per month. You can request PMI removal when your equity reaches 20%, and it is automatically canceled at 22%. This is different from MIP on FHA loans, which is harder to remove.
Why It Matters
Private mortgage insurance (PMI) is required on conventional loans when you put less than 20% down. It protects the lender (not you) if you default. PMI typically costs 0.5-1.5% of your loan amount annually, or $100-$300/month on a $300,000 loan. The exact cost depends on your credit score, LTV ratio, and loan program.
Unlike FHA mortgage insurance (MIP), conventional PMI can be removed. It automatically drops off when your loan balance reaches 78% of the original purchase price through scheduled payments. You can request removal at 80% LTV. If your home has appreciated, you can get a new appraisal to prove your LTV is below 80% — even if you haven't paid down the principal that far. This is one of the most overlooked money-saving moves in homeownership.
Real-World Example
$300,000 loan with PMI at 0.7%: $175/month, $2,100/year. If PMI lasts 7 years until you reach 80% LTV: $14,700 total paid. But if your home appreciates 4%/year and you request removal after 4 years: $8,400 total — saving $6,300 by acting early.
Pro Tip
Set a calendar reminder to check your equity every year. If your home has appreciated, order an appraisal ($300-500) and request PMI removal — the appraisal cost pays for itself in 2-3 months of saved PMI.