What is PMI and When Do You Need It?
Private Mortgage Insurance (PMI) protects the lender if you default. It is required when your down payment is less than 20% of the home price.
- Typical PMI cost: 0.5%–1.5% of loan amount per year
- On a $400,000 loan: $2,000–$6,000/year ($167–$500/month)
- PMI is removed once you reach 20% equity (by law at 22%)
Full PITI Payment Breakdown
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a complete mortgage payment:
- Principal: Reduces your loan balance
- Interest: Cost of borrowing (higher early in loan)
- Taxes: 1/12 of annual property tax, held in escrow
- Insurance: 1/12 of annual homeowners insurance
- PMI: 1/12 of annual PMI (if applicable)
2026 Mortgage Rate Outlook
30-year fixed mortgage rates in early 2026 are in the 6.5%–7.0% range. Even a 0.5% rate difference significantly impacts your payment:
- $400,000 loan at 6.5% (30yr): ~$2,528/month P&I
- $400,000 loan at 7.0% (30yr): ~$2,661/month P&I
- Difference over 30 years: ~$47,700 in total interest
Frequently Asked Questions
How much does PMI add to my mortgage payment?
PMI typically adds $83–$417 per month on a $400,000 loan (0.25%–1.25% annually). The exact amount depends on your credit score, loan size, and lender.
Can I avoid PMI with a smaller down payment?
Yes — options include a piggyback loan (80/10/10), lender-paid PMI (slightly higher rate), or VA/USDA loans which require no PMI at all.
When does PMI go away?
You can request PMI removal once you reach 20% equity. Lenders must automatically cancel PMI at 22% equity (78% loan-to-value) under the Homeowners Protection Act.
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