PMI Requirements
Private Mortgage Insurance (PMI) is the cost you pay to borrow more than 80% of a home's value on a conventional loan — a premium that protects the lender, not you, against the risk of default. Under the Homeowners Protection Act of 1998 (12 U.S.C. §§ 4901–4910), lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price through scheduled payments, and you have the right to request cancellation once you hit 80% loan-to-value (based on payments or documented appreciation). PMI typically costs 0.2% to 2% of the loan amount annually, depending on your LTV, credit score, and loan type. On a $400,000 home with 5% down, PMI at 1% runs roughly $3,800/year — a meaningful carrying cost until you build sufficient equity. Once you cross the 80% LTV threshold, request cancellation in writing; the lender must respond and remove PMI if your payment history qualifies. FHA mortgage insurance (MIP) operates under entirely different rules — FHA MIP often lasts the life of the loan regardless of equity buildup, which is why conventional loans with PMI can be the better long-term choice for borrowers with solid credit even when the upfront insurance cost seems high.
Current Law (2026)
Private Mortgage Insurance is required by lenders on conventional loans with less than 20% down payment. It protects the lender (not the borrower) against default.
| Parameter | Value |
|---|---|
| Required when | LTV > 80% (less than 20% down) |
| Automatic termination | LTV reaches 78% (original value, scheduled payments) |
| Borrower-requested cancellation | LTV reaches 80% (original or current value) |
| Cost | 0.2%-2% of loan amount annually (varies by LTV, credit score) |
| Tax deductibility | Expired after 2021 (check for extension) |
Legal Authority
- 12 U.S.C. § 4902 — Termination of private mortgage insurance: PMI must be canceled when borrower requests in writing and meets four conditions (current on payments, good payment history, 80% LTV, no subordinate liens) or automatically terminated at 78% LTV based on original amortization schedule
- 12 U.S.C. § 4901 et seq. — Homeowners Protection Act of 1998: comprehensive framework requiring lenders to disclose PMI cancellation rights at closing and annually, prohibiting PMI requirements once final termination conditions are met
How It Works
The Homeowners Protection Act (12 U.S.C. §§ 4901–4910) creates two distinct PMI termination rights. Automatic termination occurs when your loan balance reaches 78% of the original purchase price based on your scheduled amortization — the servicer must cancel PMI on that date without any action from you. Borrower-requested cancellation kicks in earlier: once your balance reaches 80% LTV (either through scheduled payments or documented appreciation), you can request cancellation in writing, and the servicer must comply if your payment history qualifies and you have no subordinate liens. PMI must also be terminated by the midpoint of the loan term (year 15 of a 30-year loan) regardless of current LTV — a final backstop that rarely comes into play.
FHA mortgage insurance premiums (MIP) operate under entirely different rules and do not follow the Homeowners Protection Act cancellation framework. For FHA loans originated since June 3, 2013 with less than 10% down payment, MIP lasts the life of the loan — no automatic termination at 78%, no borrower-requested cancellation at 80%. See FHA Loan Terms for MIP rate structure; for loan size limits that determine whether you're in conventional or FHA territory, see Conforming Loan Limits. Some lenders offer lender-paid PMI (LPMI), where the insurance cost is built into a higher interest rate — the rate disadvantage doesn't disappear when you reach 80% LTV the way borrower-paid PMI does.
How It Affects You
If you're buying with less than 20% down: PMI costs vary significantly by credit score and LTV — a 740 credit score buyer putting 5% down on a $400,000 loan pays roughly $150-$200/month (0.4-0.6% annually); at 680 credit with 5% down, PMI runs $250-$350/month (0.8-1.0%). This is $1,800-$4,200/year that builds no equity and protects only the lender. Most borrowers reach 20% equity within 5-10 years through a combination of principal paydown and home appreciation — PMI is a bridge cost, not a permanent expense. When you close, your lender must provide a written disclosure of your PMI cancellation rights (required under the Homeowners Protection Act). Save this disclosure — it outlines the scheduled cancellation date (78% LTV) and your right to request cancellation at 80% LTV. If you plan to make extra principal payments or expect the home to appreciate quickly, mark your calendar to request cancellation as soon as you hit the threshold.
If your home has appreciated and you may have reached 80% LTV: Don't wait for the automatic termination at 78% LTV (which is based on your original amortization schedule and purchase price, not appreciation). Write to your loan servicer (the company where you send your mortgage payment — find the address on your monthly statement or online account portal) requesting PMI cancellation based on current home value. To qualify under the Homeowners Protection Act (12 U.S.C. § 4902), you need: current on payments, good payment history (no 30-day late payments in the past 12 months), 80% LTV at current appraised value, and no subordinate liens. The servicer will require an appraisal — typically $300-$500 for a full appraisal, or some servicers accept a broker's price opinion ($100-$200). If the appraisal confirms 80% LTV, PMI must be removed. If your servicer is unresponsive or refuses a valid request, file a complaint with the CFPB at consumerfinance.gov/complaint.
If you're comparing PMI vs. a piggyback loan structure: An 80/10/10 piggyback (80% first mortgage + 10% HELOC + 10% down) avoids PMI by keeping the first mortgage at 80% LTV. In 2026, with HELOCs at prime + 1-2% (approximately 9-10%), the 10% HELOC generates roughly $300-$400/month in interest on a $50,000 second balance — often more expensive than PMI on the same loan. PMI at 0.4-0.6% on the full $400,000 loan costs $133-$200/month. At current HELOC rates, conventional PMI is generally cheaper than a piggyback for most borrowers. The piggyback's advantage is when you plan to sell or refinance quickly — PMI requires waiting 2+ years before cancellation requests based on appreciation will be considered by most servicers, whereas you can pay down a HELOC anytime.
If you have an FHA loan and are approaching 20% equity: FHA Mortgage Insurance Premiums (MIP) for loans originated after June 3, 2013 with less than 10% down last the life of the loan — there is no automatic cancellation, no matter how much equity you build. The annual FHA MIP rate is 0.55% for most 30-year loans — $220/month on a $400,000 balance. The only way to eliminate FHA MIP is to refinance into a conventional loan once you have 20% equity (or 15% with good credit). Calculate whether the refinancing makes sense: get rate quotes from 3 lenders, compute the monthly savings (MIP elimination + possible rate change), divide your closing costs by the monthly savings to get your break-even period. At $8,000 in closing costs and $300/month in combined savings, you break even in 26 months — worth doing if you plan to stay.
Implementing Regulations
- 12 CFR Part 1024 — CFPB Real Estate Settlement Procedures Act (Regulation X) (escrow accounts, PMI disclosure, servicing requirements)
- 24 CFR Part 203 — FHA single family mortgage insurance (FHA MIP requirements, cancellation, duration)
Pending Legislation
- HR 5508 (Rep. Meeks, D-NY) — Mortgage Insurance Freedom Act: stops FHA annual mortgage insurance premiums once a loan reaches 78% of original value, with a 2% fund-capital exception and 180-day rulemaking deadline. Status: Introduced.
- HR 2760 (Rep. Buchanan, R-FL) — Middle Class Mortgage Insurance Premium Act of 2025: would raise income limits so more middle-income homebuyers can deduct mortgage insurance premiums. Status: Introduced.
- HR 918 (Rep. Brownley, D-CA) — Mortgage Insurance Tax Deduction Act of 2025: would make the mortgage insurance premium tax deduction permanent for premiums paid after Dec. 31, 2024. Status: Introduced.
Recent Developments
- PMI deduction still expired: The mortgage insurance premium tax deduction expired after December 31, 2021 and has not been renewed. HR 918 and HR 2760 would restore or expand it, but neither has advanced. Without the deduction, PMI costs are fully out-of-pocket with no tax benefit — making PMI more expensive relative to other options like piggyback loans or waiting to save a larger down payment.
- FHA MIP reform bill: HR 5508 (Mortgage Insurance Freedom Act) would stop FHA annual MIP once a loan reaches 78% of original value, aligning FHA with conventional PMI cancellation rules. This would be a significant change for FHA borrowers who currently face lifetime MIP on most loans. No committee action yet.
- PMI costs declining slightly: With home price appreciation slowing in some markets and credit conditions tightening, average PMI rates have stabilized or declined modestly in 2025-2026. Borrowers with credit scores above 760 and 10-15% down payments are seeing rates as low as 0.2-0.3% annually — making PMI less burdensome for well-qualified buyers.