Private mortgage insurance, or PMI, is a monthly charge many US homebuyers pay when they put down less than 20% on a conventional loan. It is easy to resent — it protects the lender, not you — but it also exists for a reason, and it is not permanent. Knowing why it is required, exactly when it must fall off, and how to get rid of it sooner can save you a meaningful amount over the first years of a loan.
The key idea is the loan-to-value ratio, or LTV: the size of your loan divided by the home’s value. Put 10% down and you borrow 90%, so your LTV is 90%. PMI is fundamentally about how much of the home you have not yet paid for.
Why lenders require it above 80% LTV
When a borrower has little equity, a lender that has to foreclose is more likely to lose money — the sale may not cover the outstanding balance plus costs. Above 80% LTV (less than 20% down), that risk is high enough that conventional lenders require PMI to cover it. The insurance reimburses the lender if you default; you pay the premium, typically rolled into your monthly payment. In exchange, you get to buy sooner without saving a full 20% first.
PMI is the price of buying with a small down payment. It insures the lender against your default — but it is also the thing that lets you stop renting years earlier.
The 80% and 78% rules
US federal law — the Homeowners Protection Act — sets clear rules for borrower-paid PMI on most loans:
- Request cancellation at 80% LTV. Once your balance reaches 80% of the home’s original value, you can ask your servicer in writing to cancel PMI, provided you are current and meet their conditions.
- Automatic termination at 78% LTV. When the balance reaches 78% of the original value on the original schedule, the servicer must cancel PMI automatically — you do not have to ask.
- Midpoint backstop. If you are current, PMI must end by the halfway point of the loan term even if the 78% mark has not been reached.
How to remove it sooner
You do not always have to wait for the schedule. Options include:
- Pay down principal with extra payments to reach the 80% threshold faster, then request cancellation.
- Use a new appraisal. If your home’s value has risen or you have renovated, a lender-approved appraisal showing enough equity can support removal under the servicer’s rules.
- Refinance into a new loan without PMI once you have 20% equity — though weigh the closing costs against the savings.
Note that FHA loans work differently: their mortgage insurance premium often lasts the life of the loan, and escaping it usually means refinancing into a conventional loan.
The Canadian contrast: CMHC default insurance
Canada handles the same risk very differently. Buyers with less than 20% down must carry mortgage default insurance — from CMHC or a private insurer — but it is typically a one-time premium calculated as a percentage of the loan and usually added to the mortgage balance, not a cancellable monthly line item. Because it is baked into the loan, it does not simply “fall off” at 78% the way US PMI does; borrowers generally pay it down as part of the mortgage. The protection serves the lender in both countries, but the US version is a removable monthly cost while the Canadian version is a financed upfront premium.