How private mortgage insurance (PMI) works

When you put less than 20% down on a conventional mortgage, your loan-to-value (LTV) is over 80%. That means if you defaulted and the lender had to sell, they might not recover the loan amount from the sale. PMI is an insurance policy that covers the lender for that gap. You pay the premium; the lender is the beneficiary.

Typical conventional PMI runs 0.3%–1.5% of the loan amount per year, charged monthly. The exact rate depends on your credit score, LTV, loan type, and any compensating factors. On a $380,000 loan, even a midrange 0.6% rate is roughly $190/month — that's real money.

• 80% LTV based on original value — under federal law (HPA), you can request cancellation when your scheduled balance reaches 80% of the original purchase price, provided you're current on payments and meet other conditions.
• 78% LTV — automatic termination — the servicer must cancel automatically when your scheduled balance reaches 78% of the original value, assuming you're current.
• Midpoint of loan term — if neither threshold is reached, cancellation is required at the midpoint.
• New appraisal — many servicers will cancel earlier if a fresh appraisal shows your current LTV is below 80% (or 75% if you've owned the home less than 2–5 years). Servicer rules vary.

FHA loans use mortgage insurance premiums (MIP), not PMI. MIP follows different rules: it includes both an upfront premium and an annual premium, and on most FHA loans the annual MIP lasts the life of the loan unless you refinance into a conventional loan. They're not interchangeable.