Avoid Private Mortgage Insurance (PMI) on Your Home Loan

Laura explains what private mortgage insurance (PMI) is and how to avoid paying it. Find out your rights for cutting this expense as quickly as possible so you reduce your mortgage payment and save more money.

Laura Adams, MBA
7-minute read
Episode #436

If you’re buying a home or refinancing your mortgage, the last thing you want to hear is that the lender is tacking on an additional fee, called private mortgage insurance or PMI, to your monthly payment.

In this post I’ll explain what private mortgage insurance is and how to avoid paying it in the first place. If you’re already paying PMI, you’ll learn your rights for getting rid of it as quickly as possible so you can lower your mortgage payment and save more money.

Buy Now

As an Amazon Associate and a Bookshop.org Affiliate, QDT earns from qualifying purchases.

Free Resource: Laura's Recommended Tools—use them to earn more, save more, and accomplish more with your money!

What Is Private Mortgage Insurance (PMI)?

PMI is a special kind of insurance that lenders typically require you to purchase when you take out a conventional home mortgage with less than a 20% down payment. In other words, when you borrow more than 80% of the value of a property, expect to pay PMI—even if you have excellent credit.

For example, let’s say you want to buy a house for $200,000 and have $20,000 in savings for a down payment. Since you’ll need to borrow the difference of $180,000 or 90%, you’d generally be required to pay PMI. I’ll tell you more about the cost of PMI in just a moment.

The amount you borrow divided by your home’s value is called the loan-to-value (LTV) ratio. The higher your LTV on a property, the riskier you are to a lender. So they mitigate their risk by requiring you to buy PMI.

But remember that mortgage insurance protects the lender, not you. It covers a percentage of your lender’s loss if you can’t pay your mortgage and they have to foreclose.

The only benefit that a borrower gets from PMI is that it makes it possible to qualify for a home loan that you might not otherwise be able to get.

See also: Should You Get or Pay Off a Home Mortgage?


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.