What PMI is and who it protects
Private mortgage insurance protects the lender, not you, against loss if you default. It is required on conventional loans whenever the down payment is under 20%, and it is priced on your credit score and loan-to-value ratio — typically 0.3% to 1.5% of the loan amount per year.
The three ways out
- Automatic termination. Under the Homeowners Protection Act, the servicer must cancel PMI when the balance is scheduled to reach 78% of the original value, provided you are current on payments.
- Borrower request at 80%. You may ask in writing once the balance hits 80% of the original value. The servicer can require a good payment history and, sometimes, an appraisal.
- New appraisal based on appreciation. If your area has appreciated, an appraisal can prove 80% LTV years earlier than the amortization schedule would. Most servicers permit this after two years, and it is the single fastest lever available.
The alternatives, and what they really cost
Lender-paid PMI bundles the cost into a permanently higher interest rate — cheaper monthly at first, but it never falls off. Piggyback structures (an 80% first mortgage plus a 10% second, with 10% down) avoid PMI but add a second loan at a higher rate. Single-premium PMI pays the whole cost up front; sensible only if you are confident you will hold the loan for many years.
Do not wait for 20% out of principle
The arithmetic often favours buying sooner with PMI. If homes in your area appreciate 4% a year, waiting two years to save the extra 10% means the target price has risen roughly 8% — usually more than two years of premiums. The right question is whether the total monthly payment is affordable, not whether the down payment hits an arbitrary threshold.
Set a reminder
Servicers reliably comply with automatic termination but rarely volunteer the 80% request option, and almost never mention appraisal-based removal. Put a calendar reminder at the two-year mark to check your balance against current local values. A single phone call can be worth several thousand dollars.