PMI vs. MIP: Mortgage Insurance Explained (and How to Drop It)

Updated October 2026 · By Jet Ameti, NMLS #757627

Mortgage insurance is the most misunderstood line on a monthly statement. It protects the lender, not you — yet you pay for it. The good news: it’s not always permanent, and the rules for escaping it depend entirely on which loan program you’re in.

Why mortgage insurance exists

When you put down less than 20%, the lender’s risk is higher — there’s less equity cushion if you default. Mortgage insurance covers the lender against that risk, which is what makes low-down-payment lending possible at all. Without it, the low down payments in my down payment guide couldn’t exist. It’s the price of getting in sooner.

PMI: conventional loans (the cancellable kind)

Private Mortgage Insurance on conventional loans follows clear federal rules:

• Borrower-requested cancellation at 80% LTV: once your loan balance drops to 80% of the home’s original value (through payments, or a new appraisal showing appreciation), you can request cancellation — you generally need a good payment history and the request must go to your servicer.
• Automatic termination at 78% LTV: the servicer must drop PMI automatically when the balance hits 78% of the original value on schedule, provided you’re current on payments.
• Final termination: by law, PMI ends at the midpoint of the loan term regardless.

The practical play: if your home has appreciated, you may reach 80% LTV years ahead of schedule. A new appraisal (which you pay for) can document it — I track this for my clients with PMI-drop alerts so nobody pays a month longer than necessary.

MIP: FHA loans (the stickier kind)

FHA’s Mortgage Insurance Premium has two parts, and the rules are much less generous:

• Upfront MIP: a premium charged at closing — most borrowers finance it into the loan amount rather than paying cash.
• Annual (monthly) MIP: an ongoing monthly charge. For most FHA borrowers, this lasts for the life of the loan — it does not cancel at 78% or 80% like conventional PMI. (Borrowers who put down a larger down payment at origination can get it removed after 11 years; everyone else pays it until they refinance or pay off the loan.)

This is the single biggest long-term cost difference in the FHA vs. conventional debate. FHA’s easier entry comes with insurance you can’t simply cancel — the usual exit is refinancing into a conventional loan once you have enough equity and credit. That refinance is a real strategy, not a footnote: many of my FHA buyers plan for it from day one.

VA loans: no monthly mortgage insurance

Eligible veterans using VA loans pay no monthly mortgage insurance — at any down payment, including zero down. Instead there’s a one-time VA funding fee(which can be financed into the loan, and which disabled veterans receiving VA compensation don’t pay at all). Full details in the VA loan guide.

What PMI actually costs you

Conventional PMI isn’t one flat price — it’s risk-based, priced from your credit score band and your loan-to-value ratio. A borrower with excellent credit putting down a healthy down payment pays noticeably less per month than a borrower with fair credit and a minimal down payment on the same loan amount. That’s another reason the 90-day credit plan can pay for itself: the same score improvement that earns you a better rate often earns you cheaper PMI too. When you get your Loan Estimate, PMI shows up as its own line item — compare it across lenders, because PMI providers and pricing vary.

How to get rid of mortgage insurance faster

• Pay down principal aggressively early — extra principal payments move you toward 80% LTV faster (conventional).
• Track your home’s value. Appreciation does the same work as paydown. When you’re near 80% LTV on current value, talk to your servicer about a new appraisal.
• Refinance out of FHA MIP into conventional once your equity and credit support it — run the refinance break-even first.
• Don’t wait passively. Servicers handle the automatic 78% termination, but the 80% early cancellation requires you to act. Calendar it.

Mortgage insurance is a tool, not a trap — as long as you know which system you’re in and what the exit looks like before you sign. If you want me to map your personal PMI/MIP exit timeline, that’s a free conversation.