What is Private Mortgage Insurance (PMI)?

Private mortgage insurance is an insurance policy required by US lenders when a borrower puts down less than 20% on a conventional mortgage, protecting the lender (not the borrower) against default.

PMI premiums typically run 0.3–1.5% of the loan amount per year, paid monthly with the mortgage. The borrower pays, but the lender is the beneficiary if the loan defaults.

Borrowers can request PMI cancellation once the LTV falls below 80% (through amortisation or appreciation); lenders must automatically cancel it at 78% LTV based on the original schedule. Avoiding PMI entirely is one of the biggest reasons US buyers stretch for a 20% down payment.

Example

A buyer with a USD 300,000 loan and 10% down may pay PMI of about USD 125 per month (0.5% annualised); cancelling it after the loan amortises below 80% LTV saves USD 1,500 per year.

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Related terms

Loan-to-Value (LTV)

Loan-to-value is the ratio of a mortgage loan to the appraised value of the property, expressed as a percentage, used by lenders to assess the risk of the loan.

Debt-to-Income (DTI)

Debt-to-income is the percentage of a borrower's gross monthly income that goes toward debt payments, used by lenders to assess affordability and creditworthiness.

Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan with an interest rate that remains constant for the full term — typically 5, 10, 15, 25 or 30 years — providing predictable monthly payments and protection against rate rises.

Refinance

Refinancing is the process of replacing an existing mortgage with a new one — typically to obtain a lower interest rate, change the loan term, switch between fixed and adjustable, or cash out equity.

Frequently asked questions

Does Switzerland have PMI?+

No — the equivalent risk is managed through tighter LTV caps and mandatory amortisation of the second mortgage.

Is PMI tax-deductible?+

It has been periodically (and limited by income) in the US; check the current tax year's rules.

How do I avoid PMI?+

Put 20% down, take a piggyback second loan to stay below 80% LTV, or use a VA/USDA loan that does not require PMI.