RI Mortgage Brokers

Private Mortgage Insurance (PMI): Learn Everything About It

Jonathan Boukarim
Private Mortgage Insurance

What is Private Mortgage Insurance (PMI)?

Buying a home is one of the biggest financial steps most people will ever take. Yet the process often comes with extra terms and costs that can feel confusing. One of the most common, and most misunderstood, is something called private mortgage insurance (PMI). If you’re a buyer in Rhode Island, you’ve probably heard about it. Maybe your broker mentioned it. Maybe a friend told you it’s wasted money. Or maybe you’ve seen it listed in online mortgage calculators and wondered why you have to pay it.

Here’s the truth: PMI isn’t the enemy. It’s not a scam. It’s simply a tool that makes homeownership possible for people who don’t have huge down payments saved up. Yes, it costs money. But without it, many Rhode Islanders would be stuck renting for years, waiting to hit 20% down.

In this guide, we’ll break down exactly what private mortgage insurance is, why brokers require it, how much it costs, and most importantly, how you can avoid it or get rid of it faster. We’ll also compare alternatives like FHA and VA loans and explain what works best in Rhode Island’s housing market.

Let’s start at the very beginning.

What exactly is Private Mortgage Insurance?

At its simplest, private mortgage insurance is protection for your broker. When you buy a house without a 20% down payment, the broker takes on more risk. If you stop paying your mortgage and the bank forecloses, the broker could lose money. PMI is their safety net.

From your side, PMI doesn’t protect you at all. If you lose your job or run into financial trouble, PMI won’t make your payments or cover your losses. Instead, it guarantees that the broker won’t take the full hit if things go wrong.

That may sound unfair. But here’s the trade-off—without private mortgage insurance, most brokers would flat-out refuse to approve you unless you brought 20% down. In Rhode Island, where home prices can easily push $350,000 to $400,000, that would mean saving $70,000 to $80,000 to get in the door. For most first-time buyers, that’s unrealistic.

So, PMI gives brokers confidence. And it gives you access to homeownership years earlier.

Why Do Brokers Require PMI?

It all comes down to risk. Smaller down payments mean brokers are more exposed. If you default and the home sells for less than the loan balance, the bank could lose tens of thousands.

Private mortgage insurance reduces that risk. The broker knows that, even if the worst happens, part of the loss will be covered. That’s why PMI exists.

For you, this might feel like paying for something you don’t directly benefit from. But think of it as the cost of entry. It’s the price of buying now, instead of saving for another five or ten years.

In Rhode Island’s competitive housing market, that matters. Waiting too long could mean home prices rise even higher, pushing the dream further away.

How Much Does PMI Cost?

The cost of private mortgage insurance isn’t one-size-fits-all. It usually ranges between 0.5% and 1.5% of the loan amount each year. On a $300,000 loan, that’s anywhere from $125 to $375 per month added to your mortgage payment.

Several factors influence your PMI rate:

Higher scores usually mean lower PMI premiums. A buyer with a 760 credit score will pay far less than someone with a 620.

The closer you get to 20%, the less PMI costs. A buyer putting down 10% will pay a much lower premium than someone putting down just 3%.

Conventional loans typically have PMI if you’re under 20% down. FHA loans have their own form of mortgage insurance, which is different but serves the same purpose.

Bigger loans mean bigger PMI payments since it’s based on a percentage of the balance.

The good news? PMI isn’t forever. And there are strategies to reduce it—or eliminate it—sooner than you might think.

Types of PMI You Should Know

Not all PMI is the same. There are a few different ways brokers structure it.

This is the most common. You pay it monthly as part of your mortgage. Once you hit 20% equity, you can ask your broker to remove it.

Here, the broker pays the PMI for you, but they raise your interest rate instead. It might look cheaper monthly, but you’ll pay more over the life of the loan.

Some brokers allow you to pay PMI in a lump sum at closing. It’s expensive upfront, but it saves on monthly payments.

Each option has pros and cons. That’s why working with RI Mortgage Brokers matters. They compare brokers and help you choose the PMI structure that makes the most sense for your situation.

Alternatives to PMI: FHA Loans

PMI is tied to conventional loans. But FHA loans have their own insurance called MIP (Mortgage Insurance Premium).

MIP works differently. It requires an upfront fee at closing and an ongoing monthly premium. The big difference is that FHA’s insurance often lasts for the entire loan, unless you refinance later.

If you’re debating between PMI and FHA, it’s worth learning more. You may want to explore What Is an FHA Loan and How Does It Work in 2025 Rhode Island?. For some buyers, FHA makes sense. For others, conventional loans with PMI are cheaper long-term.

The VA Loan Advantage: No PMI

Here’s one of the biggest benefits of VA loans: no PMI at all. Veterans and active-duty service members can buy with $0 down and skip mortgage insurance completely.

It saves hundreds per month and thousands over the life of the loan. For Rhode Islanders who qualify, it’s one of the strongest reasons to use VA financing.

If you’re eligible, you should absolutely read What is a VA Loan? Everything Rhode Island Veterans Need to Know (2025). It explains why VA loans often beat both FHA and conventional options, especially when PMI is on the table.

How to Get Rid of PMI

The good news about PMI? You don’t have to keep paying it forever. In fact, there are several ways to move past it—and the sooner you know these options, the quicker you can put more money back in your own pocket. Let’s break them down step by step.

First things first, the classic route to eliminating PMI is by reaching 20% equity in your home. In other words, when your mortgage balance drops to 80% of the property’s current value, you’re eligible to request PMI cancellation. 

It can happen in two ways: either you steadily pay down your loan balance over time, or your home’s value increases while you continue to pay your mortgage. Either way, once you hit that 20% milestone, you have every right to call your broker and ask for PMI to be removed.

Now, here’s another important point to keep in mind. Even if you don’t reach out to your broker yourself, federal law requires that PMI be automatically removed once your loan balance hits 78% of the home’s original purchase price. 

That’s essentially 22% equity. However, this only happens if your payments are current and your loan is in good standing. So, as long as you’ve been paying on time, you won’t be stuck with PMI indefinitely. This built-in safeguard gives homeowners peace of mind, but it’s still smarter to stay proactive rather than just waiting.

Another powerful option is refinancing your loan. This approach becomes especially attractive when property values are climbing quickly—as they often do in many Rhode Island neighborhoods. For example, let’s say you purchased a home for $300,000. Just three years later, the value jumped to $360,000. 

By refinancing at the new value, you may suddenly find yourself above the 20% equity threshold, which means PMI can be eliminated right away. On top of that, if interest rates have dropped, refinancing can also lower your monthly payments, giving you a double win.

But that’s not all. Strategic home improvements can also play a major role in helping you cross the equity line faster. By upgrading your kitchen, finishing your basement, or even making energy-efficient updates, you can increase your property’s market value. 

As the appraised value rises, your equity share grows—and that may help you reach the 20% mark sooner than expected. Of course, not every renovation guarantees a big bump in value, so it’s wise to choose improvements that appeal to buyers and appraisers alike.

Here’s the bottom line: too many buyers keep paying PMI for years longer than necessary simply because they never request removal. Brokers are not always quick to remind you, and PMI won’t just disappear the moment you qualify—unless you hit the automatic 22% rule. 

That’s why it’s so important to keep an eye on your loan balance, monitor your home’s value, and take action once you meet the requirements. The sooner you push for removal, the sooner you’ll stop wasting money on insurance that no longer benefits you.

How Much Down Payment Avoids PMI?

The magic number is 20%. That’s the threshold to skip PMI entirely. On a $250,000 house, that’s $50,000 down. On a $400,000 house, that’s $80,000.

For most first-time buyers, that feels impossible. That’s why many turn to FHA loans instead. 

In fact, it’s common to ask: How much is the down payment for a 250k house on an FHA loan?. The answer? Around $8,750, or 3.5%.

That’s far less than $50,000. But remember, while you dodge PMI, you’re still paying FHA’s mortgage insurance premiums.

Common Myths About PMI

Let’s set the record straight on a few misconceptions:

The Rhode Island Factor

Every market has its quirks, and Rhode Island is no exception. With average home prices in Providence hovering around $400,000 and even higher in coastal towns, saving 20% down is tough. That’s why PMI is so common here.

But here’s the upside. Rhode Island’s market is also rising steadily. That means homeowners often reach 20% equity faster than they expect. In just a few years, PMI can disappear—long before the loan is paid down.

That’s why local expertise matters. RI local Mortgage Brokers understands Rhode Island’s unique housing market and knows how to position buyers to manage PMI smartly.

Final Thoughts

At the end of the day, private mortgage insurance is simply part of the deal for many buyers. It doesn’t feel great to pay for something that doesn’t protect you directly. But it opens the door to homeownership years sooner.

The key is to understand it, plan for it, and remove it as soon as possible. And if you’re buying in Rhode Island, partnering with experts like RI Mortgage Brokers ensures you know every option—FHA, VA, or conventional with PMI.

Bottom line? PMI is a stepping stone, not a life sentence. With the right strategy, you’ll move past it and into long-term equity before you know it.

FAQs

1. Can I deduct PMI on my taxes?

Sometimes. The IRS has allowed it in the past, but tax laws change often. Always check current rules and consult a tax professional before counting on it.

2. How long do I have to pay PMI?

Usually, until you reach 20% equity, in some cases, you can refinance or request early removal if your home value rises quickly.

3. Is PMI the same as mortgage protection insurance?

No. PMI protects the broker. Mortgage protection insurance protects you and your family if you can’t make payments. They sound similar but are completely different products.

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