Buyers in the United States who put down less than 20 percent on a conventional loan are often asked to pay private mortgage insurance, and the rules on how and when it ends are set by federal law. This article explains what PMI is, how it is charged and the loan-to-value thresholds that decide when it can be removed. It describes US rules only; other countries use different mechanisms.
Why PMI is back in focus with rates near 7.4%
According to the St. Louis Fed’s FRED database, which publishes Freddie Mac’s weekly survey, the average 30-year fixed mortgage rate in the United States was 7.40% for the week ending October 15, 2026. It was 7.40% the week before, 7.28% on October 1 and 6.76% on September 10. A year earlier, in the week ending October 16, 2025, it was 6.27%, so the current figure is 1.13 percentage points higher.
Higher rates raise the monthly payment on any given loan. Buyers who are stretching to qualify often reach for smaller down payments, and that is exactly the situation in which PMI appears. It is a confirmed feature of the market, not a forecast: it simply adds another line to a payment that is already heavier than it was a year ago. For how rate moves have reshaped buying decisions more broadly, see how higher rates changed property buying.
What is private mortgage insurance, and who does it protect?
The Consumer Financial Protection Bureau (CFPB) explains that PMI may be required on a conventional loan when the down payment is under 20 percent. It may also apply when refinancing a conventional loan with less than 20 percent equity. Lenders arrange it through private insurance companies.
The CFPB is direct about the beneficiary: PMI protects the lender, not the borrower, if payments stop. It does not prevent foreclosure if a borrower falls behind. What it does is make lenders more willing to approve a loan with a small down payment, which can help a buyer qualify. The trade-off is a higher cost of borrowing.
How PMI is billed
The CFPB describes three common structures:
| Structure | How it works |
|---|---|
| Monthly premium | Added to the regular mortgage payment; the most common option |
| Up-front premium | One payment at closing; may not be refundable if the borrower moves or refinances |
| Both | An up-front premium plus a monthly premium |
Both the Loan Estimate and the Closing Disclosure show PMI amounts, so the cost can be compared across lenders before committing. The CFPB also lists alternatives to weigh: a smaller down payment without PMI (usually paired with a higher interest rate), other loan types such as FHA loans, or saving toward a 20 percent down payment. Each carries its own costs, and which is cheapest depends on the specific loan quotes.
Will PMI stay for the whole loan?
No. Under the federal rules the CFPB summarizes, PMI on covered loans has three possible end points.
Cancellation on request at 80 percent. A borrower can ask the servicer to cancel once the principal balance is scheduled to reach 80 percent of the home’s original value. Extra payments can get there sooner. The servicer must grant the request if the borrower:
- asks in writing;
- has a good payment history and is current;
- certifies there are no junior liens, such as a second mortgage; and
- can show the home’s value has not fallen below its original value, for instance through an appraisal.
Automatic termination at 78 percent. Even with no request, the servicer generally must end PMI when the balance is scheduled to reach 78 percent of the original value, provided the borrower is current. If the borrower is behind, termination follows shortly after they catch up.
The midpoint backstop. The servicer must end PMI the month after the loan reaches the midpoint of its amortization schedule, even if the balance has not reached 78 percent. On a 30-year loan, that is after 15 years, again provided payments are current.
What counts as “original value”?
The thresholds are measured against the original value, which the CFPB says is generally the lower of the contract sales price or the appraised value at purchase. After a refinance it is the appraised value at the time of the refinance. This matters because rising market prices do not automatically move the date. The automatic 78 percent trigger runs off the scheduled balance against that original figure, not today’s market value.
Worked example: where the thresholds fall
The following is illustrative arithmetic, not a quote. Suppose a buyer purchases a $400,000 home, with an appraisal at the same figure, and puts 10 percent down.
- Down payment: 10% of $400,000 = $40,000
- Loan amount: $400,000 − $40,000 = $360,000
- 80 percent of original value: 0.80 × $400,000 = $320,000
- 78 percent of original value: 0.78 × $400,000 = $312,000
The buyer starts at 90 percent loan-to-value. The right to request cancellation arrives when the scheduled balance reaches $320,000, which means $40,000 of principal must be paid down. Automatic termination applies at $312,000, a $48,000 paydown. Extra principal payments can bring the request date forward. The exact calendar date depends on the rate and term, and the PMI disclosure form shows the first date a borrower can request cancellation.
Which loans and situations differ?
The CFPB notes that these rules cover single-family principal residences with loans that closed on or after July 29, 1999. FHA and VA loans have different requirements and should be checked separately. Loans backed by Fannie Mae or Freddie Mac may allow earlier cancellation, though their guidelines cannot be less favorable to borrowers than the rules described above.
Because PMI is one of several recurring charges that can surprise first-time buyers, it sits alongside the items covered in the hidden costs of buying property. Comparing it with the cost of renting is a separate question, discussed in renting versus buying: a better framing.
What to check before closing and after
Several practical points follow from the rules, stated as general information rather than advice:
- Compare PMI on the Loan Estimate and Closing Disclosure, not just the interest rate. A lower rate with PMI and a higher rate without it can produce different total costs.
- Look for the cancellation date on the PMI disclosure form.
- Understand that a written request and, often, an appraisal are part of the process, and that a second mortgage can block cancellation.
- Remember the safeguards only apply while payments are current.
How does a rate rise change the picture for low-down-payment buyers?
The rate path in the FRED series shows why timing matters. Between September 10 and October 15, 2026, the weekly average moved from 6.76% to 7.40%, a rise of 0.64 percentage points (7.40 − 6.76). A higher rate slows principal paydown in the early years because more of each payment goes to interest. That, in turn, delays the date on which the scheduled balance reaches 80 or 78 percent of original value.
This is analysis rather than a published figure, and the size of the effect depends on the loan. The principle is simple, though: the scheduled balance, not the borrower’s hopes, sets the automatic dates. Buyers comparing two loans with identical down payments should therefore look at both the monthly PMI charge and how long it is likely to last.
It also helps to separate what is fixed from what varies. The thresholds in federal law are fixed. The premium itself, whether it is billed monthly or up front, and any lender-specific cancellation process are set by the lender, insurer and loan program, and can differ from one offer to the next. Reading the disclosure documents closely is the only way to know which applies to a specific loan.
Borrowers who later refinance should also recall that the clock can reset. Because the CFPB says original value after a refinance is the appraised value at that time, the 80 and 78 percent measures are then taken against the new appraisal and the new loan.
Conclusion: a cost with a defined exit
PMI is a real cost of borrowing with a small down payment, particularly when the average 30-year rate stands at 7.40%, but in the United States it is not permanent. Federal rules set clear exit points at 80 percent, 78 percent and the loan midpoint, measured against original value. Knowing those numbers in advance lets a buyer judge the full price of a low-down-payment loan.
This article is general information, not personalized financial advice. Rules, rates and lender practices change, and this piece describes United States rules only.
Sources: Consumer Financial Protection Bureau; Federal Reserve Bank of St. Louis
