Mortgage Insurance Explained

Mortgage insurance is one of the most misunderstood lines on a mortgage payment. It protects the lender if you stop paying — not you. It can add anywhere from roughly $50 to several hundred dollars a month. And depending on your loan type, you may be able to remove it, or you may be stuck with it for the life of the loan. Knowing which situation you're in is worth real money.

PMI on conventional loans

Private Mortgage Insurance (PMI) is required on most conventional loans when your down payment is less than 20%. The cost varies with your credit score and loan-to-value ratio, and it's typically bundled into your monthly payment.

The important part is that PMI on a conventional loan is not permanent, and federal law says so. The Homeowners Protection Act of 1998 created two separate thresholds, and the difference between them matters.

• 80% LTV — you can request cancellation. Once your loan balance reaches 80% of the original value, you can ask your servicer to cancel PMI. This does not happen on its own. You generally need to request it in writing, be current on payments, and have a good payment history. Your servicer may require an appraisal at your expense to confirm value.
• 78% LTV — automatic termination. Once your balance reaches 78% of the original value based on the original amortization schedule, your servicer must terminate PMI automatically, provided you're current on payments. You don't have to ask.
• Midpoint of the loan term — final termination. If you somehow reach the halfway point of your amortization schedule and still haven't hit 78%, PMI must end then, as long as you're current.

The gap between 80% and 78% is where most money gets left on the table. If you wait for automatic termination instead of requesting cancellation at 80%, you may pay months of premiums you didn't owe. Nobody is required to remind you.

FHA mortgage insurance is different

FHA loans carry Mortgage Insurance Premium (MIP), and it works under entirely different rules. There are two parts: an upfront premium charged at closing, and an annual premium paid monthly.

The critical difference is duration. For most FHA loans, if your loan-to-value was above 90% at origination, the annual MIP stays for the entire life of the loan — it does not fall off at 80% or 78% the way conventional PMI does. If your LTV was 90% or below at origination, it typically drops after 11 years.

This is why many FHA borrowers eventually refinance into a conventional loan once they have enough equity: not necessarily to get a better rate, but specifically to escape permanent mortgage insurance. Whether that math works depends on the rate you'd be trading into and your closing costs.

VA and USDA loans

VA loans have no monthly mortgage insurance at all. They charge a one-time funding fee instead, which can be financed into the loan, and which some veterans are exempt from paying.

USDA loans have their own structure: an upfront guarantee fee and an annual fee, both generally lower than comparable FHA premiums.

Lender-paid mortgage insurance (LPMI)

Some lenders offer to pay the mortgage insurance for you in exchange for a higher interest rate. This can look attractive because there's no separate PMI line on your statement.

The trade-off is that it's baked into your rate permanently. You can't cancel it at 80% because there's nothing to cancel — the cost is your rate. If you expect to build equity quickly, standard PMI you can eventually remove may cost less overall than LPMI you can never remove.

What to actually do

• Find out which type you have. Your monthly statement and closing documents will tell you.
• If it's conventional PMI, calculate where your balance sits relative to 80% of the original value.
• If you're at or near 80%, submit a written cancellation request to your servicer.
• If you're on an FHA loan with permanent MIP and have significant equity, run the math on a conventional refinance — including closing costs and the rate you'd actually get.

This is general educational information, not financial, legal, or tax advice. Rules and figures change, and specifics vary by lender, loan type, credit profile, and location. Verify anything that affects a decision with your servicer, lender, or a licensed professional.