Private Mortgage Insurance (PMI) is a supplemental insurance policy required by lenders on conventional home loans when a buyer puts down less than 20% of the home’s purchase price. The purpose of this insurance is to protect the lender in case of a loan default.  

Fact: PMI can fast track a buyer wanting to purchase a home.

With rising costs, it can be tricky to have 20% of a home’s purchase price in savings. What’s a prospective homebuyer to do when they don’t have enough saved for a down payment? Here’s where private mortgage insurance paves the way to homeownership. Buyers who have a lower down payment are able to secure a lender loan by paying for this insurance. 

Fact: The PMI isn’t permanent to the lifetime of your mortgage loan.

For a short time, over the length of the mortgage loan, the monthly payment will be a bit higher to cover the extra PMI fee. After building a minimum of 20% equity in your home (meaning the loan balance lowers to 80% of the home’s original value), it is possible to request the PMI be cancelled. This action lowers your monthly home mortgage payment after the PMI amount is removed.

Under the federal Homeowners Protection Act (HPA), lenders are legally required to automatically terminate private mortgage insurance (PMI) when your loan balance drops to 78% of the home's original purchase price or appraised value.

Fact: PMI may be eliminated faster if certain criteria are met.

As you build equity into your home through renovations, you are increasing the home’s value. As the equity grows, you can request a home appraisal to verify the home’s value has increased. If the increase is enough, the value may meet the threshold to cancel the PMI.

Another way to accelerate equity growth is making extra principal payments—reducing your loan balance. 

As the equity grows, refinancing the loan is another option which can eliminate the PMI by replacing your current loan with a new one based on your home's current value. If the new mortgage balance is less than 80% of your home's appraised value, the new loan will not require PMI—lowering your monthly payment.

Fact: MIP and PMI insurances are similar but the length of terms and rules are different. 

FHA (federal housing administration) loans use a different type of insurance compared to a conventional home loan. The FHA insurance is called MIP (mortgage insurance premium). MIP will stay in place for the entire life of the mortgage loan unlike PMI which can be cancelled after the home’s equity is built. 

Fact: On average, having PMI adds a manageable fee to the cost of your loan amount annually. 

The exact cost of having PMI can vary based on lenders, your credit score, and the amount of financing needed compared to the size of your down payment. For instance, if PMI adds 0.3% to 1.5% to the monthly amount of your mortgage payment, this amount would range from $30-$70 for every $100,000 borrowed.

Fact: PMI can be deducted on your taxes.

Due to the One Big Beautiful Bill Act, private mortgage insurance or FHA mortgage insurance premiums are eligible tax deductions on your federal taxes. This deduction is a permanent fixture in the tax code (starting with the 2026 tax year) for those who itemize their deductions instead of taking standard deductions and have income levels under $100,000.

Got more questions about PMI? Reach out and let’s have a chat. It’s my pleasure to help you understand this topic or answer any questions you may have about real estate. 

Since 2004 Sara Lyn Nguyen continues to bring a wealth of knowledge and expertise about buying and selling real estate around the Houston area to those she serves. Sara is a multi-year award winning REALTOR® and relocation specialist where her clients trust her to have up-to-date information on the real estate market. She has been one of Gary Greene’s Multi-Million Dollar Top Producers, and citywide was the #2 Top Producing agent in 2020, #3 in 2021, #2 in 2022, #5 in 2023 and 2024. When it’s time to buy, sell, invest, or relocate speak with a trusted professional knowledgeable in the homes and neighborhoods of Fort Bend/Sugar Land and the surrounding region.