If your down payment is under 20%, your lender will almost certainly add private mortgage insurance (PMI) to your monthly bill. It protects the lender, not you — and it is pure cost. Here is what it runs, when it ends, and how to avoid it.

What PMI actually costs

PMI typically runs 0.5%–1% of the loan amount per year, depending on your down payment and credit score. On a $400,000 loan at 0.7%, that is $233/month — $2,800 a year — added to your payment for no benefit to you whatsoever.

On a 30-year loan where it takes 7–9 years to reach 20% equity through normal payments, PMI can easily cost $20,000–$25,000 over its life. That is a new car, donated to your lender's risk department.

When PMI drops off

  • Request removal at 20% equity (80% LTV). Once your loan balance hits 80% of the home's original value, you can ask your servicer to cancel PMI. You usually need a good payment history, and the lender may require an appraisal ($300–$600) to confirm the value.
  • Automatic termination at 78% LTV. By law, the servicer must drop PMI automatically when the balance reaches 78% of the original value, based on the original amortization schedule — no request needed.
  • The shortcut: appreciation. If your home's value rises, you can hit 20% equity years early. A new appraisal showing sufficient value lets you request cancellation ahead of schedule.

5 ways to avoid PMI entirely

  1. Put 20% down. The straightforward route. On a $400,000 home that is $80,000 — a lot, but it also avoids the $233/month PMI drag from day one.
  2. Piggyback loan (80-10-10). Two loans: 80% first mortgage, 10% second mortgage, 10% down. The second loan's rate is higher than PMI-era pricing used to make this attractive, so run the numbers — it is less common than it was.
  3. Lender-paid PMI. The lender covers PMI in exchange for a slightly higher rate (often +0.25%). This can win if you plan to sell or refinance within a few years, since you never pay the lump directly.
  4. VA loan. If you are eligible, VA loans have no PMI at any down payment — a major, underused benefit.
  5. Buy below your max. A cheaper home makes 20% down achievable sooner. This pairs well with our home affordability calculator: see what price keeps you at 20% down with your actual savings.

The bottom line

PMI is not the end of the world — waiting years to save 20% while home prices rise can cost more than a few years of PMI. But going in with eyes open matters: know the monthly cost, know the 20% and 78% thresholds, and calendar the date you can request cancellation. Lenders will not remind you.

Model your own payment with and without PMI in our mortgage calculator.

Estimates for planning only, not financial advice. PMI rules and costs vary by lender and loan type.