What Is PMI—and How Can You Avoid Paying It?
May 27, 2025
5 min read
When I bought my first home, I had no idea what PMI was. I was laser-focused on finding a place that didn’t need a new roof and figuring out how many Ikea trips I could make before maxing out my sanity. PMI? Just another line item in the mortgage paperwork fog.
But three months in, I finally sat down to unpack my closing docs—and there it was. An extra $140 every month. For something that wasn’t even insurance for me. It was private mortgage insurance, and it turns out, that money was protecting my lender. Not me.
So if you’re home shopping now or refinancing, let’s talk plainly about what PMI is, why it shows up on your mortgage, and—most importantly—how you can avoid paying it longer than necessary.
So, What Is PMI, Really?
PMI stands for Private Mortgage Insurance. It’s a type of insurance that protects the lender, not you, in case you stop making payments on your loan. The Urban Institute reports that PMI costs borrowers between 0.46% and 1.5% of their loan amount each month on average.
If you put down less than 20% on a conventional mortgage, your lender sees you as higher risk. PMI is their safety net—it reimburses them for losses if you default. Think of it as their way of hedging their bets.
It’s not unusual. In fact, most first-time buyers pay it. According to a survey, more than half, or about 57%, of homebuyers put down less than 20%, which usually triggers PMI.
And here's the kicker: PMI doesn’t lower your loan amount or give you extra protections. It's purely a cost added to help your lender feel secure in taking a chance on you with a smaller down payment.
How PMI Shows Up in Your Mortgage
PMI is typically baked into your monthly mortgage payment, right alongside your principal, interest, property taxes, and homeowners insurance. You’ll see it listed as a separate line item on your loan estimate or closing disclosure.
There are a few types of PMI, but the most common is called Borrower-Paid PMI—that’s the monthly version you’ll probably encounter. Other variations include:
- Lender-Paid PMI – Higher interest rate instead of a separate monthly fee.
- Single-Premium PMI – One large upfront cost at closing.
- Split-Premium PMI – A combination of upfront and monthly payments.
If you’re not sure which one you’re being offered, ask your lender directly. They’re required to disclose it, and the cost can vary based on your credit score, loan type, and the percentage you put down.
Can You Avoid PMI Altogether?
Short answer: Yes, if you can hit 20% down—or if you go with a loan type that doesn’t require it. But let’s break this down a little.
1. Put at least 20% down.
This is the clearest path to skip PMI from the start. If you’re buying a $350,000 home, that means putting down $70,000. For many buyers, especially first-timers, that’s just not doable. But if you’re selling one home and buying another—or you’ve been saving aggressively—reaching 20% could save you thousands in the long run.
2. Consider piggyback loans.
Some buyers use what’s called an 80/10/10 loan: you take out a primary mortgage for 80% of the home’s value, a second loan for 10%, and put 10% down. This structure avoids PMI because the first loan stays under that 80% threshold. It’s a more complex setup, and not every lender offers it, but it’s worth asking about if you’re trying to bridge the gap without paying PMI.
3. Go with a government-backed loan.
FHA loans have their own version of mortgage insurance (called MIP), but VA loans for eligible veterans and active service members don’t require PMI at all—regardless of down payment. USDA loans also don’t charge PMI, though they have their own fee structures.
If You Have to Pay PMI, Here's How to Drop It Faster
So maybe avoiding PMI upfront isn’t in the cards. That’s okay. But you don’t have to keep paying it forever.
1. Watch your equity.
Once you’ve paid down your loan to the point where you have 20% equity, you can request that your lender cancel PMI. This usually requires a formal request and a property appraisal, but it’s absolutely worth doing. If you don’t ask, most lenders are required to automatically cancel PMI at 22% equity—but why wait?
2. Make extra payments.
Even small extra payments toward your principal can help you hit that 20% mark faster. Tossing an extra $100 a month at your loan could shave off years—and thousands of dollars in PMI.
3. Refinance when your home value goes up.
If property values in your area rise sharply (and your mortgage balance doesn’t), refinancing could help you hit that 20% equity threshold even sooner. Keep in mind: refinancing resets your loan term, so do the math to make sure it’s worth it.
Don’t Confuse PMI with MIP or Homeowners Insurance
Quick heads-up: not all mortgage-related insurance is created equal.
- PMI (Private Mortgage Insurance): Conventional loans, borrower pays to protect lender.
- MIP (Mortgage Insurance Premium): FHA loans, similar purpose but structured differently.
- Homeowners Insurance: Covers property damage, theft, liability—this is your protection.
Make sure when reviewing paperwork that you understand which insurance is which. Your monthly mortgage payment might bundle all three.
Should You Avoid PMI at All Costs?
Here’s the thing about PMI. While nobody loves paying it, avoiding it shouldn’t come at the expense of buying a home that’s right for you or putting yourself in financial strain to scrape together a 20% down payment. Remember, PMI is temporary. Once you’ve hit that equity mark (whether by paying down your mortgage or the market doing its thing via appreciation), those payments are gone.
Plus, in some cases, PMI might even be worth it. Maybe buying sooner rather than later locks you into a rising market, saving you money in the long run. Or perhaps it frees you up to use some of that would-be down payment for renovations, savings, or investments. The key is finding the balance that makes sense for your life and financial goals.
Don’t Fear PMI, But Don’t Ignore It
PMI isn’t evil—it’s a tool that helps people buy homes with less upfront cash. But it’s also an expensive tagalong you don’t want to keep around longer than necessary.
If you’re shopping for a home, make sure to ask your lender:
- Will PMI apply to this loan?
- How much will it cost monthly?
- Can I remove it early if I hit 20% equity?
- Are there alternative loan options that avoid PMI?
Knowing the answers upfront helps you plan smarter. And if you already have PMI, don’t let it quietly hang out in your mortgage for years. Keep tabs on your equity and be ready to drop it when the time comes.
