How to Get Rid of PMI (and Stop Paying for the Bank's Insurance)

If you bought a home with less than 20% down, there's a good chance a quiet line item is riding along in your monthly payment: PMI. It's one of the most misunderstood costs in homeownership — partly because the name makes it sound like it's protecting you. It isn't.

What PMI actually is

PMI stands for private mortgage insurance. When you put down less than 20%, the lender is taking on more risk — if you stop paying, they have less of your money as a cushion. PMI is insurance the lender requires you to pay for, but the payout goes to them if you default.

Read that again, because it's the whole point: you pay the premium, the bank gets the protection. It's the cost of being allowed to buy with a smaller down payment.

PMI isn't a penalty and it isn't permanent. It's a toll you pay until you've built enough equity — and you have more control over that timeline than most people realize.

What it costs

PMI usually runs somewhere between 0.3% and 1.5% of your loan amount per year, depending on your credit and down payment. On a $400,000 loan, even 0.5% is about $2,000 a year — roughly $167 a month — buying you nothing you keep.

Hypothetical, illustrative only — not a guarantee or financial advice.

The two ways it goes away

There are two milestones that matter, and they're not the same.

1. Automatic termination at 22% equity. By federal law, on most loans your servicer must cancel PMI automatically once your loan balance reaches 78% of the home's original value — based on your normal payment schedule. You don't have to ask. The catch: it's tied to the original purchase price and your scheduled payoff, so it can take years.

1. Requesting cancellation at 20% equity. You don't have to wait for the automatic date. Once you reach 20% equity, you can request cancellation in writing. This is the lever most people don't pull — and it can save you a year or more of premiums.

How to get there faster

Equity is the game. A few ways to reach 20% sooner:

• Pay down principal directly. Extra payments marked "apply to principal" shrink the balance — and the day PMI ends.
• Use a rising market. If nearby homes have appreciated, your equity may already be past 20% even if your balance hasn't moved much. You'll typically need a lender-ordered appraisal to prove it, but it can be well worth the few hundred dollars.
• Make one strategic lump-sum payment. A tax refund or bonus aimed at principal can push you over the 20% line months early.

The step people skip

Servicers don't go out of their way to cancel PMI early — it's revenue for the insurer, not them. So the move is simple: know your number. Figure out the loan balance that equals 80% of your home's value, watch for it, and the moment you're there, send a written cancellation request. Ask what they require — usually a clean payment history and sometimes an appraisal.

PMI does a job: it gets people into homes sooner. But once it's done that job, every month you keep paying it is money handed to the bank for nothing. Treat the 20% mark as a finish line, and cross it on purpose.