How PMI Works and When It Drops

TL;DR: Private Mortgage Insurance (PMI) protects the lender when your down payment is under 20%. It costs 0.3-1.5% of loan amount annually and cancels automatically at 78% LTV.

_Last reviewed: July 2026 · 3 min read_

If you bought your home with less than 20% down and PMI is on your monthly bill, the honest answer is: PMI protects the lender (not you) and adds 0.3-1.5% of your loan amount annually to your payment. Federal law requires automatic cancellation at 78% loan-to-value on your original amortization schedule, and you can request cancellation earlier at 80% LTV — but you have to ask.

Okoniq Property Hub tracks your loan balance + estimated value so you know exactly when PMI removal becomes available.

What's PMI?

Private Mortgage Insurance is an insurance policy that pays your lender if you default. Required on conventional mortgages when you put down less than 20%.

Rough monthly cost: 0.3% to 1.5% of the loan amount annually, split into monthly premiums.

• $300K loan × 0.5% PMI = $1,500/year = $125/month

PMI rate depends on:

• Credit score — higher credit = lower PMI
• Loan-to-value — closer to 80% = lower PMI
• Loan program — some require higher PMI

What's the "78% LTV" rule?

Under the Homeowners Protection Act (HPA) of 1998 (full text at CFPB), lenders must:

• Automatically cancel PMI when loan balance reaches 78% of original property value based on original amortization schedule
• Cancel on request at 80% LTV, if borrower is current on payments and requests in writing

"Original property value" = purchase price OR original appraised value, whichever is lower. NOT current market value.

How to speed up PMI removal

Three paths:

1. Wait for amortization to hit 78%

At 78% LTV by amortization, PMI cancels automatically. For a 30-year loan at 6%, this typically happens around year 11-13.

2. Request cancellation at 80% LTV (from amortization)

At 80% LTV by amortization, write to your servicer requesting PMI cancellation. Servicer must comply if you're current on payments and there's no second mortgage.

Reaches 80% LTV around year 10-11 on a 30-year loan.

3. Request cancellation at 80% LTV (from appreciation)

If your home has appreciated, current LTV may be at 80% before amortization gets there. Request based on new appraisal:

• Contact your servicer and ask about their appreciation-based cancellation policy
• Pay for an appraisal ($400-$600 typical)
• Servicer confirms LTV ≤ 80% at current appraised value
• Some servicers require you to be at 75% LTV rather than 80% for appreciation-based cancellation

This can save you PMI 3-5 years earlier than waiting for amortization.

The FHA MIP difference

FHA loans use Mortgage Insurance Premium (MIP), which has different rules:

• MIP with under 10% down: life of the loan — never cancels
• MIP with 10%+ down: 11 years

If you have FHA and want out of permanent MIP, the path is refinancing to conventional once you have 20% equity. See FHA vs conventional for first-time buyers.

Track amortization + value

Okoniq Property Hub tracks your amortization schedule + estimated home value so PMI cancellation timing is a lookup. Related: how to remove PMI faster, amortization schedule explained, FHA vs conventional for first-time buyers, and the Mortgage & Money hub. Full HPA text at Consumer Financial Protection Bureau.

Frequently asked questions

Is PMI tax deductible?

Federal PMI deduction expired for 2022+ tax years. Some states offer their own deduction.

Can I pay upfront PMI?

Some lenders offer "single-premium PMI" — pay a lump sum upfront in exchange for no monthly PMI. Usually 1.5-3% of loan amount. Break-even math depends on how long you'll hold and interest rate.

What if my second mortgage puts me above 80% LTV?

Second mortgages count for PMI cancellation. If your first + second exceed 80% CLTV, first-mortgage PMI can't be cancelled until CLTV drops below 80%.

Not financial advice. PMI rules interact with loan type and property value — consult your servicer + a licensed mortgage broker. Okoniq Property Hub keeps loan details organized. Get started free.

FAQ

How long does it take for PMI to drop off automatically?

PMI cancels automatically when your loan balance reaches 78% of the original property value based on your amortization schedule. On a typical 30-year loan at 6% interest, this happens around year 11-13.

Can I cancel PMI if my home value goes up but I haven't paid down to 80% yet?

Yes. If your home has appreciated enough that your current loan balance is 80% or less of the new appraised value, you can request cancellation based on appreciation. You'll need to pay for an appraisal ($400-$600) and some lenders require 75% LTV instead of 80% for appreciation-based removal.

What's the difference between PMI and MIP on an FHA loan?

PMI is for conventional loans and cancels at 78% LTV, while MIP is for FHA loans and stays for the life of the loan if you put down less than 10%. FHA loans with 10% or more down have MIP for 11 years, but the only way to remove permanent MIP is refinancing to a conventional loan once you have 20% equity.

Does PMI protect me if I can't make my mortgage payment?

No. PMI protects the lender if you default, not you. If you can't make payments, PMI reimburses the lender for their loss but does not prevent foreclosure or protect your credit.