Do You Have to Pay Mortgage Insurance on Your Loan?

If you’re buying a home or refinancing, you’ve probably heard the term “mortgage insurance.“ It’s an extra cost that can add to your monthly payment, so it’s a very common and important question: do these loans require mortgage insurance? The short answer is that it depends almost entirely on how much money you put down. Let’s break it down in simple terms so you know exactly what to expect.

Mortgage insurance isn’t insurance for you, the homeowner. It doesn’t protect your home or your belongings. Instead, it’s a policy that protects the lender in case you stop making payments and they have to foreclose on the house. Because it’s for the lender’s benefit, it’s a cost that’s typically passed on to you. The main rule of thumb is this: if you put down less than 20% of the home’s price, you will almost certainly have to pay for mortgage insurance. The logic is that with a smaller down payment, you have less personal money invested upfront, which the lender sees as a slightly higher risk.

There are two main types of loans where this comes into play: conventional loans and government-backed FHA loans. They handle mortgage insurance quite differently. For a conventional loan—the kind not backed by a government agency—the insurance is called Private Mortgage Insurance, or PMI. If your down payment is less than 20%, your lender will require PMI. The good news is that PMI is not permanent. By law, on a conventional loan, your lender must automatically cancel PMI once you reach 22% equity in your home based on the original property value. You can also request to cancel PMI once you believe you have 20% equity, which might happen if your home’s value has increased. Getting rid of PMI is a key financial milestone for many homeowners.

FHA loans are a different story. These popular loans are known for their lower down payment requirements, often as low as 3.5%. However, they come with two types of mortgage insurance: an upfront premium that can be rolled into your loan amount, and an annual premium that is split into your monthly payments. Crucially, FHA mortgage insurance is much harder to remove. If you put down 10% or more, the monthly insurance will last for 11 years. If you put down less than 10%, the monthly insurance lasts for the entire life of the loan. The only way to get rid of FHA mortgage insurance is to refinance out of the FHA loan into a conventional loan once you have enough equity.

What about loans that don’t require mortgage insurance? There are a few exceptions. If you make a down payment of 20% or more on a conventional loan, you won’t have to pay for PMI at all. That’s one of the biggest financial incentives for saving up a larger down payment. Additionally, VA loans, available to veterans and service members, and USDA loans, for eligible rural homebuyers, do not require monthly mortgage insurance. They do have other fees—a VA funding fee or a USDA guarantee fee—that serve a similar purpose, but they often result in lower costs than traditional mortgage insurance and sometimes don’t require a down payment.

It’s also worth mentioning that if you are refinancing your existing mortgage, the same 20% equity rule generally applies. If you don’t have at least 20% equity in your home when you refinance, you will likely have to pay mortgage insurance on the new loan, even if you had already paid off the PMI on your old one.

In the end, whether your loan requires mortgage insurance is primarily a matter of your down payment and the loan type you choose. It’s a cost designed to protect lenders, which allows them to offer loans to people who haven’t saved a full 20% down payment. While it increases your monthly expense, it can be the key that unlocks homeownership sooner. The most important thing is to ask your lender upfront about the insurance requirements for your specific loan scenario, how much it will cost, and—critically—how and when you can eventually remove it. Understanding this cost from the start will help you budget accurately and plan for the future, making your journey as a homeowner clearer and more manageable.