How Long Do You Pay Mortgage Insurance? It Depends on the Type of Loan

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Buying a home is a significant financial milestone but it can also come with some unexpected expenses. One of these expenses is mortgage insurance which can add hundreds of dollars to your monthly payment. But how long do you have to pay mortgage insurance? The answer depends on the type of loan you have.

Conventional Loans

For conventional loans you’ll typically have to pay mortgage insurance (PMI) if you put down less than 20% of the home’s purchase price. The good news is that you can get rid of PMI once your loan balance reaches 80% of the home’s original value. This is known as the “80% LTV threshold.” You can request that your lender remove PMI once you reach this point, or they may automatically remove it.

Here’s an example:

Home purchase price: $400,000
Down payment: $50,000 (12.5%)
Loan amount: $350,000
80% LTV threshold: $320,000

In this example, you would have to pay PMI until your loan balance reaches $320,000. Once it does, you can request that your lender remove PMI.

FHA Loans

For FHA loans, you’ll have to pay mortgage insurance premiums (MIP) regardless of your down payment. MIP comes in two forms: an upfront premium and an annual premium. The upfront premium is typically 1.75% of the loan amount, and the annual premium is 0.85% of the remaining loan balance.

The good news is that you can get rid of the annual MIP once you reach 20% equity in your home. However, you’ll still have to pay the upfront premium for the life of the loan.

VA Loans

VA loans are a great option for veterans and active-duty military personnel. They don’t require any down payment or mortgage insurance. However, there is a one-time funding fee that you’ll have to pay. The amount of the funding fee depends on your down payment and whether you’re a first-time homebuyer.

Other Factors that Can Affect How Long You Pay Mortgage Insurance

In addition to the type of loan you have, there are a few other factors that can affect how long you pay mortgage insurance:

Your credit score: The higher your credit score, the lower your PMI rate will be. This means you’ll reach the 80% LTV threshold faster and can get rid of PMI sooner.
The value of your home: If the value of your home increases, you’ll reach the 80% LTV threshold faster.
Whether you make extra payments: Making extra payments on your mortgage will help you pay it down faster and reach the 80% LTV threshold sooner.

How to Get Rid of Mortgage Insurance Early

If you want to get rid of mortgage insurance early, there are a few things you can do:

Make a larger down payment: If you can afford to make a larger down payment, you may be able to avoid paying PMI altogether.
Improve your credit score: The higher your credit score, the lower your PMI rate will be. This means you’ll reach the 80% LTV threshold faster and can get rid of PMI sooner.
Make extra payments on your mortgage: Making extra payments on your mortgage will help you pay it down faster and reach the 80% LTV threshold sooner.
Refinance your mortgage: If interest rates have fallen since you took out your mortgage, you may be able to refinance to a lower rate and get rid of PMI.

The Bottom Line

How long you have to pay mortgage insurance depends on the type of loan you have, your credit score, the value of your home, and whether you make extra payments. By understanding these factors, you can take steps to get rid of mortgage insurance early and save money on your monthly payments.

Is PMI required for all types of mortgage loans?

PMI is not required in all cases. It is needed when you get a conventional mortgage with a down payment of less than 20 percent. FHA loans have their own type of mortgage insurance premiums that you’ll pay upfront and annually. VA loans don’t require PMI or any other type of mortgage insurance.

Should you pay PMI?

Paying PMI comes with one major benefit: It enables you to buy a home without waiting until you can afford a 20 percent down payment. Home prices remain high, at a median of $384,500 nationally as of Feb. 2024, according to the National Association of Realtors.

Homeownership is generally an effective long-term and generational wealth-building tool. Buying a property sooner rather than later allows you to acquire an important asset and start building equity. Even though your monthly premiums are expensive, they will actually help you earn a profit if local home prices increase at a rate greater than what you are paying for PMI.

How long do i pay PMI?

FAQ

How long do you have to keep paying mortgage insurance?

After you’ve bought the home, you can typically request to stop paying PMI once you’ve reached 20% equity in your home. PMI is often canceled automatically once you’ve reached 22% equity. PMI only applies to conventional loans. Other types of loans often include their own types of mortgage insurance.

How soon can you get rid of mortgage insurance?

Even if you don’t ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.

How much is PMI on a $300 000 loan?

But in general, the cost of private mortgage insurance, or PMI, is about 0.5 to 1.5% of the loan amount per year. This annual premium is broken into monthly installments, which are added to your monthly mortgage payment. So a $300,000 loan would cost around $1,500 to $4,500 annually — or $125 to $375 per month.

Do you pay mortgage insurance monthly?

FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment. If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket.