Private mortgage insurance explained: what it costs and how to cancel it

Are you trying to figure out whether private mortgage insurance will add hundreds to your monthly payment or just a few dollars?

If you're buying a home in Worcester County with less than 20 percent down, you'll almost certainly encounter PMI on a conventional loan.

The median single-family home price in Worcester County climbed to $480,000 in 2025, and with the median first-time buyer putting down just 10 percent, according to the National Association of REALTORS, most buyers in this market will pay PMI for at least a few years.

That extra cost doesn't have to be a mystery. Here's what PMI actually is, how much you can expect to pay, and the specific steps you can take to get rid of it.

What PMI is and why lenders require it

Private mortgage insurance (PMI) is a policy that protects your lender — not you — if you stop making mortgage payments. Lenders require it on conventional loans whenever your down payment is less than 20 percent of the home's purchase price.

Here's how the math works. If you're buying a $480,000 home and put down 10 percent ($48,000), you're borrowing $432,000. The lender is financing 90 percent of the home's value, and if you default, PMI covers a portion of the lender's potential loss. While that coverage benefits the lender, it gives you something valuable too: the ability to buy a home without saving the full 20 percent. On a $480,000 home, that's $96,000 — an amount that isn't realistic for many buyers in the near term.

How much PMI costs on a Worcester County home

PMI rates typically range from 0.46 percent to 1.50 percent of the original loan amount per year, according to the Urban Institute's Housing Finance Policy Center. You can also think of it as roughly $30 to $70 per month for every $100,000 you borrow, per Freddie Mac.

Let's say you're purchasing a home at the Worcester County median of $480,000 with 10 percent down. You'd borrow $432,000. At a PMI rate of 0.50 percent — typical for a borrower with a credit score of 740 or higher — you'd pay about $2,160 per year, or $180 per month. If your credit score is closer to 680 and your PMI rate lands at 1.0 percent, that monthly cost jumps to $360.

Several factors determine where your rate falls within that range:

Credit score: Borrowers with scores above 740 typically pay the lowest PMI rates. Scores below 680 can push rates toward the higher end of the spectrum.

Down payment size: A 15 percent down payment will cost you less in PMI than a 5 percent down payment, because the lender's risk is lower.

Loan-to-value ratio (LTV): This is the flip side of your down payment. A 90 percent LTV (10 percent down) carries a lower PMI rate than a 97 percent LTV (3 percent down).

Debt-to-income ratio: If you carry more debt relative to your income, insurers may charge a higher rate.

Your lender will provide your specific PMI rate in the loan estimate. If you're comparing offers from different lenders, check the PMI line item carefully — it can vary.

How PMI gets paid

The most common structure is borrower-paid monthly PMI, where the premium is added to your mortgage payment each month. You can cancel this type once you build enough equity. Some lenders also offer single-premium PMI, where you pay the full cost upfront at closing in exchange for no monthly charge — though you won't get a refund if you sell or refinance early. A third option is lender-paid PMI, where the lender covers the premium but gives you a higher interest rate for the life of the loan. The tradeoff there is that you can't cancel the higher rate without refinancing. Ask your lender which structure they offer and compare the total cost over the time you expect to own the home.

How PMI differs from FHA mortgage insurance

If you're comparing a conventional loan to an FHA loan, the insurance works differently. Mortgage insurance premium (MIP) on an FHA loan includes an upfront charge of 1.75 percent of the loan amount (usually rolled into the loan) plus an annual premium. The biggest difference is cancellation. With conventional PMI, you can request removal at 20 percent equity and your lender must cancel it at 22 percent. With FHA MIP, if you put down less than 10 percent, you'll pay that annual premium for the entire life of the loan — the only exit is refinancing into a conventional loan once you've built sufficient equity.

How to get PMI removed

Federal law is on your side here. The Homeowners Protection Act of 1998, also known as the PMI Cancellation Act, gives you two clear paths to eliminating PMI on a conventional loan.

Request cancellation at 80 percent LTV

You can submit a written request to your loan servicer to cancel PMI once your balance reaches 80 percent of the home's original value. You'll need to be current on your payments, have no second liens on the property, and demonstrate a clean payment history — no payments more than 60 days late in the past two years, or more than 30 days late in the past year, per the Office of the Comptroller of the Currency. Your servicer may also require an appraisal confirming the home's value hasn't declined.

Wait for automatic termination at 78 percent LTV

If you don't make the request yourself, your servicer is required by law to automatically cancel PMI once your loan balance is scheduled to reach 78 percent of the original value, based on the original amortization schedule. You must be current on your payments at that point. If you're not, the servicer will cancel PMI once you become current.

Get there faster with extra payments or a new appraisal

You don't have to wait for the amortization schedule to do the work. If you make extra principal payments, you can reach the 80 percent threshold sooner and request early cancellation. Worcester County home values have been rising steadily — up 4.3 percent in 2025 alone, according to data from The Warren Group — so your home may already be worth more than what you paid. Some servicers allow you to request a new appraisal to demonstrate that your equity has reached 20 percent based on current market value, not just the original purchase price. Keep in mind that you'll typically pay for the appraisal out of pocket, and the servicer's policies will determine whether they accept it.

Ways to avoid PMI altogether

If paying PMI doesn't fit your plan, you have options — though each comes with its own tradeoffs.

Put 20 percent down. The most straightforward path, but at Worcester County's median price of $480,000, that's $96,000 — a tall order for many buyers, especially first-time purchasers.

Use a piggyback loan. Sometimes called an 80-10-10, this structure pairs a first mortgage for 80 percent of the home's value with a second mortgage (usually a home equity loan or line of credit) for 10 percent, and you put down the remaining 10 percent. You avoid PMI because the first mortgage stays at 80 percent LTV. The second loan typically carries a higher interest rate, though, so you'll want to compare the total cost against a single loan with PMI.

Choose a VA loan. If you're a veteran, active-duty service member, or eligible surviving spouse, VA loans require no down payment and no mortgage insurance at all. You'll pay a one-time funding fee, but there's no ongoing monthly charge.

Explore state programs. MassHousing offers mortgage loans with their own mortgage insurance structure called MIPlus, which includes job-loss protection at no additional cost. The Massachusetts Housing Partnership's ONE Mortgage program offers a 30-year fixed-rate loan with a 3 percent down payment and no PMI requirement. Income limits apply to both.

How PMI fits into your monthly payment

Let's say you're buying a $480,000 home with 10 percent down, borrowing $432,000 at 6.01 percent — roughly the current 30-year fixed average from Freddie Mac. Your monthly principal and interest payment would be about $2,593. Add a PMI rate of 0.55 percent, and PMI tacks on another $198 per month.

That $198 isn't permanent. On a standard 30-year amortization schedule with 10 percent down, you'd hit automatic PMI termination at 78 percent LTV in roughly nine years. You could request cancellation at 80 percent LTV a year or two sooner. And if home values rise or you make extra payments, the timeline shrinks further.

PMI and your taxes

PMI premiums were once tax-deductible for many homeowners, but that deduction has expired and hasn't been renewed as of 2025. Don't count on it when calculating your costs — consult a tax professional for guidance on your situation.

Making the decision

PMI adds to your monthly costs, but it also makes homeownership accessible years sooner than saving for a full 20 percent down payment. For buyers in Worcester County — where home prices are climbing and homes sell in roughly 23 days on average, per Redfin — waiting to save more means competing against rising prices.

The math is worth running for your own situation. Compare the total cost of a lower down payment with PMI against a larger down payment without it, factoring in how long you plan to stay and how quickly you can build equity. There's no single right answer, but the numbers will point you toward the one that fits.