Private mortgage insurance
Private mortgage insurance (PMI) is insurance a lender arranges through a private mortgage insurer on certain conventional mortgages, commonly when the down payment is below 20%. It protects the lender against losses if the borrower defaults. The borrower generally pays the premium, which raises mortgage costs but does not insure the home or the borrower.
Also called: pmi, mortgage insurance
PMI is a cost you pay that protects someone else. If you stop making mortgage payments, the policy pays the lender for its covered loss, and you can still face delinquency, foreclosure and the loss of the home, according to the Consumer Financial Protection Bureau (opens in a new tab). It is separate from homeowners insurance, it adds to your monthly payment or closing costs, and when it ends depends on your loan type, the home's original value, your payment record and federal or state rules.
How PMI adds to a mortgage payment
PMI may cost about $30 to $70 a month for every $100,000 borrowed, according to Freddie Mac (opens in a new tab). That is an approximate range, not a quote. Applied to an illustrative $200,000 home bought with 5% down:
Hover or tap a row to highlight it.
| Item | Amount |
|---|---|
| Purchase price | $200,000 |
| Down payment (5% of $200,000) | $10,000 |
| Mortgage amount ($200,000 minus $10,000) | $190,000 |
| Low end of PMI (1.9 times $30) | about $57 a month |
| High end of PMI (1.9 times $70) | about $133 a month |
Those figures sit on top of principal, interest, taxes, homeowners insurance and closing costs. PMI never pays you for damage to the house, your personal property, liability or extra living expenses after a loss, which are matters for your homeowners policy.
Ways to pay for PMI and what each changes
Conventional mortgage insurance commonly applies when the loan-to-value ratio is above 80%, and a typical conventional PMI cost runs 0.2% to 2% of the loan amount a year, according to Fannie Mae (opens in a new tab). The price depends on the loan type, down payment or equity, credit score, loan term and insurer rules. The payment plan decides when you pay that cost.
- Monthly premium. Added to your mortgage payment, the most common arrangement.
- Annual premium. Paid once a year, commonly through escrow.
- Single premium. One payment at closing for coverage over the life of the loan. Upfront PMI may not be refundable if you move or refinance.
- Split premium. An upfront amount plus continuing monthly premiums.
- Lender-paid mortgage insurance. The lender pays the premium, generally in exchange for a higher interest rate or other loan pricing, according to the Fannie Mae mortgage insurance primer (opens in a new tab). A quote that says "no PMI" can still carry that cost inside the rate.
PMI is private insurance on conventional loans. On an FHA loan, the comparable charge is generally called a mortgage insurance premium, or MIP, and comes through the federal FHA program, and FHA and VA loans follow different mortgage-insurance rules.
Where you meet the term
PMI shows up in mortgage paperwork, not in an auto, homeowners, condo, renters, life, health or business policy. Look for it on mortgage quotes and preapprovals, the Loan Estimate, the Closing Disclosure (opens in a new tab), the PMI disclosure supplied with the loan, payment and escrow statements, servicing notices, cancellation correspondence and any foreclosure or loss-mitigation letters.
You will not find it on the declarations page of a homeowners policy, though a lender may require homeowners insurance separately from PMI.
When PMI ends, and how Connecticut and New York add to it
Under federal law, you may ask to cancel borrower-paid PMI when the scheduled principal balance reaches 80% of the home's original value. The request must be in writing, and you need a good payment history, current payments, no subordinate lien and, if required, evidence that the property's value has not fallen below its original value, under 12 U.S.C. § 4902 (opens in a new tab). PMI generally must end automatically when the loan is scheduled to reach 78% of original value if payments are current, and there is a final termination after the midpoint of the amortization schedule, subject to the statute's conditions. These rules use the original value, not today's market value.
Connecticut adds disclosure duties. A lender that requires mortgage insurance on a first mortgage must tell you in writing at application its purpose, that it is required and any conditions for release, and a good-faith estimate of its initial and monthly cost, under Conn. Gen. Stat. § 36a-726 (opens in a new tab). A lender that skips mortgage insurance but charges a higher rate on a first mortgage above 80% loan-to-value must disclose that too.
New York adds an earlier stopping point. On a first-lien loan, you generally cannot be required to keep paying mortgage guaranty insurance once the unpaid principal is 75% or less of the property's appraised value when the loan was made, and a mortgage insurer may not seek a deficiency judgment against you after foreclosure, under New York Insurance Law § 6503 (opens in a new tab).
Questions to ask your lender or servicer
- Is this conventional PMI, FHA mortgage insurance or another form of mortgage insurance? Cancellation and termination rules differ by loan program.
- What is the PMI amount, how is it calculated, and is it paid monthly, annually, upfront or split? The structure changes your cash at closing and your monthly payment.
- What are the scheduled cancellation date, automatic termination date and midpoint termination date for this loan? Those dates mark when borrower-paid PMI may end under federal law.
- What appraisal, lien and payment-history conditions apply if I ask to cancel? A written request alone may not be enough.
- If the offer says "no PMI," is the cost built into a higher rate, lender-paid coverage or another charge? Removing a listed premium does not always remove the cost.
Frequently asked questions
These come up most when a borrower compares offers or reviews a statement.
Does PMI end when my home's market value rises to 20% equity?
Not automatically. Federal cancellation and termination rules generally work from the original value and the scheduled principal balance. Ask your servicer what evidence of current value it accepts and what conditions apply to a request.
Can I get a refund of PMI?
It depends on how you paid. Upfront PMI may not be refundable if you move or refinance, and federal law addresses the return of unearned premiums when PMI terminates. Ask the servicer how any unearned amount is handled for your loan.
Is PMI the same as homeowners insurance?
No. PMI covers the lender's loss if you default, while homeowners insurance covers your property and liability under its own terms. A lender may require both, and they appear as separate lines in your mortgage disclosures.
What is PMI called in Spanish?
Seguro hipotecario privado, or PMI por sus siglas en inglés, as translated in the CFPB Spanish-English glossary (opens in a new tab). Seguro PMI and seguro de la hipoteca are also heard in everyday use.