The short answer
PMI works like any insurance policy, with one twist: you pay the premium, but the lender is the one protected. On a conventional mortgage with less than 20% down, the lender requires it so that if you stop paying and the home sells for less than you owe, the insurer covers part of the loss. Most people pay it as a monthly charge in their mortgage payment, and it can be removed once your balance drops to 80% of the home's original value.
The one sentence most buyers get wrong
Ask a new homeowner what PMI does, and many will say it covers the mortgage if they lose their job or get sick.
It doesn't. PMI stands for private mortgage insurance, and the policy belongs to your lender. If you default, the insurer pays the lender, not you. You can still lose the house. Your credit still takes the hit.
That isn't a reason to resent PMI. It's what makes buying with less than 20% down possible. It's just a reason to understand what you're paying for, and what you aren't. A free payoff projection can show how long your PMI is likely to last.
When PMI is required
PMI applies to conventional loans, which are mortgages not backed by a government agency. Lenders generally require it when your down payment is less than 20% of the home's value.
Government-backed loans handle this differently. FHA loans have their own mortgage insurance, called MIP, with different rules and costs. VA loans don't charge monthly mortgage insurance at all, though most have a one-time funding fee. USDA loans carry their own upfront and annual fees. See PMI vs. FHA mortgage insurance for the comparison.
Four ways to pay for PMI
Most borrowers never realize they had a choice. There are four common ones.
| Type | How you pay | Can it be removed? |
|---|---|---|
| Borrower-paid monthly | A monthly charge in your mortgage payment | Yes, at 80% to 78% of original value |
| Single premium | One lump sum at closing | No refund if you sell or refinance early, in most cases |
| Lender-paid | Built into a higher interest rate | No, it lasts as long as the loan |
| Split premium | Part at closing, smaller monthly charge | Yes, the monthly part |
Borrower-paid monthly PMI is by far the most common, and it's the only one this guide spends much time on, because it's the one you can get rid of.
Lender-paid PMI deserves a warning. It feels like a free pass because there's no PMI line on your statement. But you pay for it every month through a higher rate, and the only way out is to refinance or sell.
How PMI is priced
Insurers price PMI on risk. The biggest factors are:
- Your credit score. Higher scores mean lower premiums, sometimes dramatically.
- Your down payment. 15% down costs less than 5% down.
- The loan. Term, loan size, and whether the rate is fixed all play a part.
The result usually lands somewhere around 0.3% to 1.5% of the loan amount per year. On a $360,000 loan, that's $90 to $450 a month. Monthly PMI is commonly calculated on the original loan amount, so it often stays the same until it's removed. See how much PMI costs for examples.
How PMI shows up in your payment
Monthly PMI is usually collected with your mortgage payment, often through your escrow account along with property taxes and homeowners insurance. Look at your monthly statement or annual escrow summary. It may be labeled PMI, MI, or mortgage insurance.
If you can't find it, call your servicer and ask: "How much am I paying for mortgage insurance, and what's my original value for cancellation?" Those two numbers tell you how far you are from the exit.
How PMI ends
For most conventional loans on a primary home closed after July 1999, federal law sets the rules. You can request cancellation at 80% of the original value, it ends automatically at 78%, and it must end at the loan's halfway point no matter what. The full rules, with timelines, are in when PMI comes off automatically, and every option is in PMI explained.
The coverage that actually protects your family
If what you really want is insurance that keeps your family in the house if something happens to you, that's a different product. Mortgage protection pays toward your mortgage when you can't, and the benefit goes to your family, not the bank.
Thinking past PMI
PMI is a short chapter in a long loan. Once it's gone, the bigger question is how long the rest of the mortgage takes. Ridgewell's Mortgage Accelerator Program is designed to change how your mortgage is structured, so qualifying households can pay off a home in as little as 5 to 7 years.
Payoff timelines are illustrations for qualifying households and are not guaranteed.
Where to start
Find out which kind of PMI you have. Check your closing documents or ask your servicer. If it's borrower-paid monthly, ask for your original value and current balance so you know exactly how far you are from 80%.
Then get a free payoff projection to see how soon you could reach it.
Examples assume a $360,000 conventional loan. PMI rules and pricing vary by lender, insurer, and loan type.
