What is private mortgage insurance (PMI)
Private mortgage insurance (PMI) is a type of insurance that may be required by your mortgage lender if your down payment is less than 20 percent of your home’s purchase price. PMI protects the lender against losses if you default on your mortgage.
Who’s required to have PMI
Homebuyers who get a conventional loan and put down less than 20 percent of the home’s purchase price are usually required to pay PMI. Ask your lender if the loan you are considering requires private mortgage insurance or a mortgage insurance premium (MIP).
How much PMI costs
The cost of PMI depends on your credit score and down payment, but generally it ranges from 0.3 percent to 1.5 percent of the original loan amount each year. That’s an extra cost, on top of the interest you pay on your mortgage.
Sample PMI calculation
How you pay PMI
You may pay PMI up front at closing, or the premium may be added to your monthly payment. Or you may be required to pay both an upfront and monthly premium. It depends on the lender and type of loan.
Who avoids PMI
Homebuyers who put down at least 20 percent of the home’s purchase price on a conventional loan avoid PMI. If you want to buy a home but don’t have a big down payment, ask your lender about your options. You might be eligible for a no-PMI loan. For example, Bank of America offers the Affordable Loan Solution® mortgage, which lets borrowers with modest incomes put down as little as 3 percent with no mortgage insurance required.1
How to stop paying PMI
If certain conditions are met, your loan servicer will automatically cancel your PMI when your loan-to-value ratio (or LTV, a measure of equity) reaches 78 percent of the original value of your home.
However, you can call or write a letter asking for it to be canceled when your LTV hits 80 percent, although you may be required to pay for a new appraisal. (These cancellation rules do not apply to the mortgage insurance premium on FHA loans.)
Sample loan-to-value ratio
Original appraised value
Read more about LTV and how it’s used.
- Maximum income and loan amount limits apply. Fixed-rate purchase loans, primary residences only. Certain property types are ineligible. Maximum loan-to-value (“LTV”) is 97%, and maximum combined LTV is 105%. For LTV >95%, any secondary financing must be from an approved Community Second Program. Homebuyer education may be required. Other restrictions apply.
Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.