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What Is PMI and How Do You Get Rid of It?
PMI, or private mortgage insurance, is a monthly fee on a conventional mortgage when your down payment is under 20%. It protects the lender if you default, not you. The good news: PMI is temporary. You can request cancellation at 20% equity (80% loan-to-value), and federal law forces automatic termination at 78% LTV. FHA mortgage insurance works very differently.
That distinction trips up a lot of Colorado Springs buyers, so let’s break down what PMI actually is, what it costs, and the fastest legitimate ways to get rid of it.
What is PMI and why do you have to pay it?
PMI is insurance that reimburses your lender if you stop making payments and the home goes to foreclosure. It exists because borrowers who put down less than 20% statistically carry more risk, and the insurance lets lenders approve those loans anyway. In other words, PMI is the price of admission for buying a home without a 20% down payment.
You pay it, but you are not the beneficiary. If you default, the PMI company pays your lender. Depending on the loan and your state’s rules, the insurer may also have rights to pursue the borrower, so it is purely a lender-protection product, not coverage for you.
PMI only applies to conventional loans (loans backed by Fannie Mae or Freddie Mac). Most lenders build it into your monthly payment, though some offer lender-paid PMI or a one-time upfront premium. The most common setup is borrower-paid monthly PMI, which is also the easiest to cancel later.
How much does PMI cost?
PMI typically runs between roughly 0.30% and 1.50% of your loan amount per year, divided into monthly payments. Where you land depends mostly on your credit score and your down payment size: higher credit and a bigger down payment push the rate down. Confirm current pricing with your lender, because PMI rates move with the market and with each insurer’s rate card.
Here is what that looks like on a home near the El Paso County median. The Colorado Springs-area median sale price has been hovering in the mid-$400,000s, so let’s use a $450,000 home with 5% down ($427,500 loan).
| Credit profile | Estimated annual PMI rate | Approx. monthly PMI | Approx. annual cost |
|---|---|---|---|
| Strong credit (760+) | ~0.30% | ~$107 | ~$1,283 |
| Good credit (700-759) | ~0.55% | ~$196 | ~$2,351 |
| Fair credit (640-699) | ~0.95% | ~$338 | ~$4,061 |
| Lower credit (620-639) | ~1.35% | ~$481 | ~$5,771 |
These are illustrative estimates on a $427,500 loan, not quotes. The takeaway: PMI can add anywhere from about $100 to nearly $500 a month, which is real money. That is exactly why knowing how to cancel it matters.
How do you get rid of PMI?
On a conventional loan there are two protections written into federal law, the Homeowners Protection Act of 1998. You can request cancellation at 80% LTV, and your servicer must automatically terminate PMI at 78% LTV. Here are the main paths off the books:
- Borrower-requested cancellation at 80% LTV. Once your loan balance drops to 80% of the home’s original value, you can submit a written request to cancel. You will generally need a solid payment history, no second lien, and sometimes a current appraisal proving value hasn’t fallen.
- Automatic termination at 78% LTV. When your balance reaches 78% of the original value, your servicer must drop PMI automatically, as long as you are current on payments. You don’t have to ask.
- Midpoint termination. If you somehow haven’t hit 78% by the halfway point of your loan term (year 15 of a 30-year loan, for example), PMI must end then, provided you are current.
- Early cancellation based on appreciation. If your home’s value has climbed, your loan investor’s rules (Fannie Mae or Freddie Mac) may let you cancel based on the current value once you have enough equity, typically with a new appraisal and after meeting seasoning requirements. This is separate from the HPA original-value rules and is set by your servicer and investor, so ask them how it works on your loan.
- Refinance. Refinancing into a new conventional loan with at least 20% equity eliminates PMI entirely. This only makes sense if the new rate and closing costs pencil out.
What’s the difference between conventional PMI and FHA MIP?
This is the single most important thing to understand, and it’s where buyers lose thousands. Conventional PMI cancels. FHA mortgage insurance premium (MIP), on most modern FHA loans, does not.
If you put down less than 10% on an FHA loan, the annual MIP lasts for the life of the loan. The only way to remove it is to refinance out of the FHA loan entirely, typically into a conventional loan once you have 20% equity. FHA also charges an upfront premium of 1.75% of the loan amount at closing. VA loans, by contrast, have no monthly mortgage insurance at all.
| Feature | Conventional PMI | FHA MIP |
|---|---|---|
| Applies to | Conventional loans, <20% down | Nearly all FHA loans |
| Upfront premium | Usually none | 1.75% of loan amount |
| Cancellable at 80%/78% LTV? | Yes (HPA) | No (with <10% down) |
| How to remove | Request, auto-terminate, or refi | Usually refinance out of FHA |
| Lasts | Until 78-80% LTV | Life of loan (most cases) |
The practical lesson for a buyer choosing between loan types: a conventional loan with PMI can be cheaper over time than FHA, because the insurance eventually disappears. But FHA may be the only door open if your credit or down payment is tight. A good broker runs both side by side. See our breakdown of FHA vs. conventional loans in Colorado and our first-time buyer guide for the full comparison.
Can you avoid PMI without 20% down?
Sometimes, yes. A piggyback structure (an 80-10-10, where a second loan covers 10% so your first mortgage stays at 80% LTV) avoids PMI but adds a second payment, often at a higher rate. Some lenders offer lender-paid PMI, which folds the cost into a slightly higher interest rate so there’s no separate line item, though you can never cancel it. And certain loan programs simply don’t use PMI at all. The right answer depends on your numbers, which is exactly the kind of math a local broker can run in a few minutes.
The local angle: PMI and rising Colorado Springs values
Here’s a scenario we see often along the Front Range. A buyer purchases near Fort Carson with 5% down and a chunk of monthly PMI. Two or three years later, El Paso County appreciation has pushed their home’s value up meaningfully. Instead of waiting a decade to grind their balance down to 78%, they ask their servicer about early cancellation based on current value, order the required appraisal, document the added equity from appreciation, and drop PMI ahead of schedule, potentially saving thousands a year. Rising values can be a tool. Most homeowners just never think to use them, and your servicer is not going to remind you.
Frequently asked questions
Is PMI tax deductible?
The federal PMI deduction has expired and been reinstated several times over the years and is not a reliable benefit to plan around. Check the current tax year’s rules with a tax professional before counting on any deduction.
Does PMI go away on its own?
On a conventional loan, yes. By federal law your servicer must automatically terminate PMI when your balance reaches 78% of the home’s original value, as long as you’re current on payments. You can also request cancellation earlier at 80% LTV.
Can I cancel PMI if my home went up in value?
Often, yes. If appreciation has built up enough equity, many loans allow early cancellation based on the home’s current value with a new appraisal. Your loan investor and servicer set the exact equity threshold, seasoning period, and documentation, so ask them first.
How long do I pay PMI on an FHA loan?
If you put down less than 10% on an FHA loan, the annual MIP generally lasts the life of the loan. Most borrowers remove it by refinancing into a conventional loan once they have 20% equity.
Is PMI the same as homeowners insurance?
No. Homeowners insurance protects you and your property against damage and liability. PMI protects only your lender against default. They are two entirely separate things.
Talk it through with a local broker
PMI is one of those costs that quietly drains a budget long after closing, and many homeowners pay it longer than they need to. If you’re buying near Colorado Springs or already paying PMI and wondering whether you can drop it, 719 Lending can run the numbers and map out a path off your insurance. Reach out anytime for a straightforward conversation, no pressure.
719 Lending Inc., NMLS #1601989 · Equal Housing Opportunity · This article is educational only, is not a commitment to lend, and not all applicants will qualify. 719 Lending is not affiliated with or endorsed by any government agency.
