Private Mortgage Insurance in the US: How to Avoid or Remove It

Private mortgage insurance (PMI) protects lenders when you put down less than 20% on a conventional loan, but it costs you between 0.3% and 1.5% of the original loan amount annually. You can avoid it by putting 20% down, using a piggyback loan structure, or accepting lender-paid PMI. Once your equity reaches 20%, you can request cancellation, refinance into a no-PMI loan, or wait for automatic termination at 22% equity.

What PMI Is and Why It Matters

Lenders require PMI on conventional loans when your loan-to-value ratio exceeds 80%. A borrower with a $300,000 home and a $270,000 loan (90% LTV) might pay $2,025 to $4,050 annually in PMI premiums. Unlike the mortgage interest deduction, PMI offers limited tax benefits for most households as of 2026.

According to the Consumer Financial Protection Bureau, PMI exists because borrowers with smaller down payments statistically pose higher default risk (CFPB, 2026). The charge disappears once you build sufficient equity, either through principal paydown, home appreciation, or both.

Seven Ways to Avoid or Remove PMI

Method	When It Works	Upfront Cost	Long-Term Savings	Best For
20% Down Payment	Purchase	High (full 20%)	Highest (no PMI ever)	Buyers with substantial savings
Piggyback Loan (80-10-10)	Purchase	Moderate (10% down)	Moderate (second lien carries higher rate)	Buyers with good credit, some savings
Lender-Paid PMI	Purchase or refinance	None	Lower (higher rate for life of loan)	Long-term owners, low cash reserves
Build Equity to 20%	After purchase	None	Moderate (stop PMI once reached)	Appreciating markets, patient borrowers
Refinance	After equity reaches 20%	Moderate (closing costs)	Immediate PMI removal	Rising home values, falling rates
Request Cancellation at 20%	After equity reaches 20%	Low ($300-500 appraisal)	Immediate PMI removal	Strong payment history, current on loan
Automatic Termination at 22%	After midpoint of amortization	None	Happens automatically	Borrowers who forget to request cancellation

Option 1: Make a 20% Down Payment

Putting 20% down avoids PMI entirely. On a $300,000 home, that means $60,000 upfront. You gain immediate equity, a lower monthly payment, and often a better interest rate. The tradeoff is depleting liquid savings.

Option 2: Piggyback Loan (80-10-10 Structure)

With 10% down, you take a first mortgage at 80% LTV (no PMI) and a second mortgage (typically a HELOC or home equity loan) for the remaining 10%. The second lien carries a higher rate, often 1 to 3 percentage points above the first mortgage. According to foundational financial texts such as Principles of Finance, this structure spreads risk across two loans and can save money if you pay off the second lien quickly.

Option 3: Lender-Paid PMI

The lender covers PMI in exchange for a higher interest rate (usually 0.25% to 0.5% higher). Unlike borrower-paid PMI, this rate increase stays for the full loan term unless you refinance. Fannie Mae allows this structure on conforming loans (Fannie Mae, 2026). It works best if you plan to refinance within a few years or lack cash for a larger down payment.

Option 4: Build Equity Through Payments and Appreciation

Your LTV drops as you pay down principal and as your home appreciates. In a market appreciating 5% annually, a buyer with 10% down might reach 20% equity in four to five years. This is the slowest method but requires no extra cash.

Option 5: Refinance to Remove PMI

Once your home value supports an 80% LTV on the new loan, refinancing eliminates PMI. You pay closing costs (typically 2% to 5% of the loan amount), so calculate break-even: if refinancing costs $6,000 and saves $200 monthly in PMI, you break even in 30 months.

Option 6: Request Cancellation at 20% Equity

Federal law allows you to request PMI cancellation once your LTV reaches 78% of the original purchase price, based on scheduled amortization. Lenders may require an appraisal ($300 to $500) if you claim early equity through appreciation. You must be current on payments with no recent late payments.

Option 7: Automatic Termination at 22% Equity

Lenders must automatically cancel PMI when your loan balance reaches 78% of the original home value, or at the midpoint of your amortization schedule, whichever comes first, as long as you are current on payments. According to HUD guidelines, this is a borrower protection that prevents lenders from charging PMI indefinitely (HUD, 2026).

Recommendations by Borrower Profile

High savings, stable income: Put 20% down to avoid PMI and secure the lowest rate.

Moderate savings, strong credit: Use an 80-10-10 piggyback loan to preserve cash while avoiding monthly PMI.

Low savings, need to buy now: Accept borrower-paid PMI and plan to refinance or request cancellation once equity hits 20%.

Long-term owner, limited refinance plans: Consider lender-paid PMI if the rate increase is modest and you value stable payments.

Appreciating market, equity building fast: Track your LTV and request cancellation as soon as you reach 20% equity through a combination of principal paydown and appreciation.

Conclusion

PMI is not permanent. Whether you avoid it at purchase with a larger down payment or piggyback structure, or remove it later through equity buildup, refinancing, or formal cancellation, you have control over this cost. Run the numbers for your situation: compare upfront cash, monthly savings, and break-even timelines. Consult a licensed loan officer to confirm current PMI rates, cancellation policies, and the best strategy for your loan.

Financial Disclaimer: This article provides general educational information about private mortgage insurance and is not personalized financial, lending, or legal advice. PMI rates, loan-to-value requirements, cancellation policies, and loan terms vary by lender, loan type, credit profile, and property location. Interest rates and home values change; verify current terms with a licensed mortgage lender before making decisions. For personal financial or tax questions, consult a licensed loan officer, financial advisor, or tax professional.