Private Mortgage Insurance: What It Really Costs and How It Ends

What PMI Costs and When You're Stuck With It

Private mortgage insurance, PMI, is the fee a conventional lender charges when a buyer puts down less than 20 percent of the purchase price. The Consumer Financial Protection Bureau states it plainly: once the loan-to-value ratio goes above 80 percent, the lender requires PMI to cover its own risk, not the buyer's. It gets added to the monthly payment and stays there until the loan balance drops far enough.

The cost isn't small talk. Freddie Mac's own homebuyer education site puts typical PMI at $30 to $70 a month for every $100,000 borrowed. Its own worked example: a $200,000 loan with 5 percent down carries PMI of $80.75 a month, based on a 0.51 percent insurance rate. Push the loan size up or the credit score down, and that monthly number climbs from there.

FHA loans work differently, and the difference matters if the down payment is under 10 percent. HUD's own rules, in effect since June 2013, require FHA borrowers with under 10 percent down to pay mortgage insurance premium for the life of the loan. There's no 78 percent cutoff waiting for them at all. That's a different animal from conventional PMI, and it's the reason some FHA buyers refinance into a conventional loan the moment they have enough equity.

The 78% Rule, the 80% Rule, and the Real Math

Two numbers control when PMI ends on a conventional loan, and the Consumer Financial Protection Bureau spells out both. At 80 percent loan-to-value of the home's original value, a borrower can request cancellation in writing, as long as payments are current and there's no second lien on the property. At 78 percent, the servicer has to cancel it automatically, no request needed, again as long as payments are current.

These rules have applied to conventional mortgages closed on or after July 29, 1999, per the Consumer Financial Protection Bureau. On a standard 30-year loan with normal amortization, reaching 78 percent LTV through monthly payments alone takes years, not months, since the first several years of a mortgage payment go mostly to interest. Extra principal payments speed it up. A rising home value can also get a borrower to 80 percent sooner, but a cancellation request based on appreciation usually requires a new appraisal that the borrower pays for.

None of this applies if the mortgage insurance on a loan is actually FHA mortgage insurance premium under a different name. Conventional PMI cancels on the LTV math above. FHA MIP on a loan with less than 10 percent down, per HUD, runs for the life of the loan regardless of LTV, which is exactly why refinancing out of FHA and into conventional is the standard move once there's enough equity to qualify.

If You'd Rather Sell Than Keep Paying It

Waiting years for equity, or paying for a new appraisal and hoping it comes in high enough, isn't the only way to stop your PMI payment. Selling your house pays off the loan entirely, PMI included, the day the sale closes. On a loan carrying Freddie Mac's typical PMI cost of $30 to $70 a month for every $100,000 borrowed, that ends an ongoing expense when your loan is paid off.

At Cash Flow Deals, we review your loan payoff, current PMI cost, and home's condition, then show you the Fast Cash Offer and the Premium Cash Offer together. With the Fast Cash Offer, we buy your house as-is and close, with no repairs for you to make. With the Premium Cash Offer, a pre-approved FHA or conventional buyer we already have, ready to go, pays more and buys directly from you. You choose which offer fits.

For either offer, the number is agreed before any work starts, and it changes only if you agree. The one exception: if something structural surfaces that was not visible or disclosed before we signed — foundation issues, hidden moisture, old wiring, cast-iron drain failure — we re-cost it and bring the number back to you. You decide. You can walk away. We disclose what we know at offer time so this almost never happens.

We cover repair costs, and we figure out a way, so nothing comes out of your pocket. On Premium, only what the buyer's lender requires gets fixed; those repair costs are covered ahead of closing and settled from the sale proceeds, from our share rather than your agreed number. With Fast Cash, you sell as-is.

For Premium, you sign with us and give us permission to bring in a buyer in our place. Your home may be listed through Silver Door Realty, a licensed Florida brokerage, with a licensed agent and scheduled showings. Your buyer signs a new contract directly with you, title transfers directly from you to that buyer, and their lender funds the purchase. We are paid as a separate line item on the closing statement. If the buyer's loan falls through, that is our problem, not yours, and you can still take the Fast Cash Offer at its own number instead of the Premium Cash Offer.

The existing closing timeline on this page is 45 days or less, on a date you help pick; confirm the schedule for the offer you choose in your written contract. Your existing loan, PMI and all, gets paid off at the closing table, ending the monthly premium.

Selling is one path. If you can comfortably wait for equity, or refinance into a better rate today, you might come out ahead doing that instead. Cash Flow Deals gives you two offers to compare when you want to sell and pay off the mortgage and its PMI.