Every month, for the first 86 payments on her mortgage, Keisha wrote a check that included $193 she'd never see again. Not principal. Not interest. Mortgage insurance. It didn't protect her. It protected the bank.
She knew this when she signed. She'd put 5% down on a $420,000 home because saving $84,000 for a 20% down payment would have taken another four years in her market. The PMI was the toll she paid to get in the door earlier.
What she didn't know was that she could have gotten rid of it two years sooner than she did. Most people don't.
30-Second Summary: Private mortgage insurance (PMI) is required when your down payment is less than 20% on a conventional loan. It costs 0.46% to 1.50% of the loan amount annually, depending on your credit score. You can request cancellation at 80% LTV and it's automatically removed at 78% LTV. Over 5 years, PMI on a typical loan costs more than $11,000.
What Is Mortgage Insurance?
Mortgage insurance protects the lender (not you) against default. If you stop paying, the insurance company covers part of the lender's loss. This is why lenders will approve loans with small down payments: the insurance reduces their risk.
On conventional loans, this insurance is called PMI (Private Mortgage Insurance). On FHA loans, it's called MIP (Mortgage Insurance Premium). They work differently, and the difference matters. For a head-to-head comparison, see our PMI vs. FHA MIP guide.
What PMI Costs
PMI rates depend on your credit score and loan-to-value ratio. The Urban Institute and NerdWallet provide rate data across score bands [1]:
| Credit Score | Annual PMI Rate | Monthly Cost ($399k Loan) | Annual Cost |
|---|
| 760+ | 0.46% | $153 | $1,835 |
| 740–759 | 0.58% | $193 | $2,314 |
| 700–719 | 0.90% | $299 | $3,591 |
| 620–639 | 1.50% | $499 | $5,985 |
On Keisha's $399,000 loan (she put 5% down on a $420,000 home) with a 740 credit score, PMI ran $193 per month. Over five years, that's $11,571 spent on insurance that offered her zero protection.
That's the real motivation for removing PMI as fast as possible.
How to Get Rid of PMI
The Homeowners Protection Act of 1998 gives you two federal rights [2]:
1. Request Cancellation at 80% LTV
When your loan balance drops to 80% of the original purchase price (or appraised value at the time of purchase, whichever is lower), you can write to your servicer and request PMI removal. You must be current on payments.
For Keisha's $420,000 home: 80% of $420,000 = $336,000. When her balance hits $336,000, she can request cancellation.
2. Automatic Termination at 78% LTV
Lenders must automatically cancel PMI when your balance reaches 78% of the original value, provided you're current. This happens on its own. You don't need to ask.
78% of $420,000 = $327,600. Keisha's PMI drops off automatically when her balance reaches this level.
The Appreciation Shortcut
What if your home's value has increased? Fannie Mae allows early PMI removal based on current value [3]:
- After 2 years of ownership: PMI can be removed if current LTV is 75% or less
- After 5 years: Current LTV of 80% or less qualifies
- Substantial improvements (renovations): May waive the 2-year seasoning requirement [4]
If Keisha's home appreciated from $420,000 to $510,000 in year 3, and her balance is $380,000, her current LTV is 74.5%. She could request PMI removal two years early, even though she hasn't hit 80% of the original price.
This requires a new appraisal (at your cost, usually $300–$500). But saving 24 months of $193/month PMI ($4,632) makes the appraisal fee look like the best money she ever spent.
FHA Mortgage Insurance: The Different Beast
FHA loans have their own insurance, and it's harder to remove. FHA MIP is permanent for the life of the loan if your down payment is less than 10%. If you put down 10% or more, MIP drops off after 11 years [5].
The only way most FHA borrowers eliminate MIP is to refinance into a conventional loan once they have 20% equity.
For the full breakdown, including which insurance costs more at different credit scores, read our PMI vs. FHA MIP comparison.
The 2026 Tax Deduction Is Back
The mortgage insurance premium tax deduction was gone from 2022 through 2025. Starting with tax year 2026 (returns filed in 2027), it's been permanently reinstated under the "One Big Beautiful Bill Act" [6]. If you're paying PMI or MIP in 2026, keep your statements for tax time.
You'll need to itemize to claim it. The 2026 standard deduction is $32,200 for married couples filing jointly [7], so this primarily benefits borrowers with other large deductions (like property taxes and mortgage interest).
Your Next Move
- Check your current LTV. Divide your loan balance by your home's original purchase price. If you're at or near 80%, call your servicer.
- Check your home's current value on Zillow, Redfin, or through a local comp analysis. If appreciation has pushed your current LTV below 75% (and you've owned for 2+ years), request an appraisal for early PMI removal.
- Make extra principal payments if you're close to the 80% threshold. Even $200/month extra can shave months off your PMI timeline.
- Set a calendar reminder for the month your amortization schedule shows you'll hit 78% LTV. Verify that your servicer removes PMI automatically.
- Save your PMI payment records for tax year 2026. The deduction is back.
References
- Urban Institute / NerdWallet. (2025). PMI Calculator: How Much Is Mortgage Insurance? NerdWallet.com.
- 105th Congress. (1998). Homeowners Protection Act of 1998. Congress.gov. https://www.congress.gov/bill/105th-congress/senate-bill/318
- Fannie Mae. (2025). Servicing Guide B-8.1-04: Termination of Conventional Mortgage Insurance. FannieMae.com.
- Freddie Mac. (2025). Chapter 8203: Mortgage Insurance Termination. FreddieMac.com.
- U.S. Department of Housing and Urban Development. (2025). FHA Single Family Housing Policy Handbook 4000.1. HUD.gov.
- U.S. Mortgage Insurers. (2025). MI Deductibility. USMI.org. https://www.usmi.org/policy_priorities/mi-deductibility/
- IRS. (2025). IRS releases tax inflation adjustments for tax year 2026. IRS.gov.
