Private Mortgage Insurance (PMI)

Definition

PMI is the monthly premium you pay when you buy a property with less than 20% down on a conventional mortgage. It protects the lender, not you, if you default. The premium is typically 0.3% to 1.5% of the loan amount annually, paid monthly alongside your PITI. On a $200,000 loan with 10% down, PMI might add $100 to $200 per month to your payment. PMI stays in place until your loan balance drops below 80% of the original purchase price, at which point federal law (the Homeowners Protection Act of 1998) requires the lender to automatically cancel it. You can also request early cancellation once you reach 80% LTV through principal payments or appreciation, though lenders often require a new appraisal at your expense. PMI rarely applies to investment properties because investment property mortgages typically require 20 to 25% down as a minimum, eliminating the PMI question entirely. PMI is most common on primary residence purchases and on house hacking strategies where the investor lives in one unit of a small multifamily.

Formula

Example

You buy a primary residence for $300,000 with 10% down. Loan is $270,000. PMI rate is 0.65%. Annual PMI = 270,000 x 0.0065 = $1,755, or roughly $146 per month added to PITI until you reach 80% LTV.

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