PMI explained: what it costs and how to get rid of it

Conventional PMI

PMI usually costs roughly 0.3% to 1.5% of the loan amount per year, depending mainly on your credit score and down payment. On a $360,000 loan, 0.6% a year is about $180 a month.

How to remove it

• Request cancellation at 80%. Under the federal Homeowners Protection Act, you can ask your servicer to cancel PMI once your balance is scheduled to reach, or you pay it down to, 80% of the original value, if you have a good payment history.
• Automatic termination at 78%. PMI must end automatically when your balance is scheduled to hit 78% of the original value, as long as you are current.
• Based on today's value. If your home has risen in value, many servicers will cancel PMI based on a new appraisal, often after two to five years of payments and at 75% to 80% loan-to-value.

FHA mortgage insurance (MIP)

• Upfront: 1.75% of the loan, usually added to the balance.
• Annual: paid monthly, 0.55% of the loan per year for most borrowers.
• How long: for the life of the loan if you put down less than 10%; 11 years if you put down 10% or more.
• How to remove: refinance into a conventional loan once you have enough equity. When that refinance makes sense.

Ways to avoid PMI from the start

Put 20% down, use a VA loan (no monthly mortgage insurance), or ask about lender-paid mortgage insurance, where the lender covers it in exchange for a higher rate. Lender-paid MI cannot be canceled later, so it fits best if you plan to move or refinance within several years.