PMI Explained: What It Really Costs and When It Goes Away in Texas

About 30 percent of Austin buyers put down less than 20 percent, according to data from the Urban Institute’s Housing Finance Policy Center. Most of them end up paying PMI (private mortgage insurance). Plenty of them don’t fully understand how long it lasts or how to get rid of it.

PMI is one of those line items that shows up in your monthly payment without much explanation. Your loan officer mentions it at application. You sign documents acknowledging it at closing. Then it quietly adds $100 or $200 per month to your bill for years, until you take action or the law requires it to stop.

Here’s a clear look at how PMI works, what it actually costs on a current Austin-area home, and three specific ways to remove it earlier.

What Is PMI and Why Do Lenders Require It?

PMI is insurance that protects your lender, not you, if you stop making payments and the lender has to foreclose. When you put down less than 20 percent, the lender takes on more risk because there’s less equity cushion between what you owe and what the home is worth. PMI compensates the lender for that added risk.

The loan-to-value ratio, or LTV, is the key number. If you borrow $405,000 on a $450,000 home, your LTV is 90 percent. With LTV above 80 percent, lenders require PMI on conventional loans. Once you build equity down to an 80 percent LTV, you generally have the right to request cancellation. At 78 percent LTV, federal law requires automatic termination.

One thing buyers often misunderstand: PMI is not the same as homeowners insurance, and it’s not the same as the mortgage insurance on FHA loans. PMI applies to conventional loans and can be removed. FHA mortgage insurance (called MIP) works under different rules, which we’ll cover below.

What Does PMI Cost on an Austin-Area Home?

PMI rates vary based on your credit score, LTV, loan type, and the insurer your lender uses. The general range is 0.20 to 1.50 percent of the loan amount annually. For most buyers in the Austin area with solid credit (740+), rates typically fall between 0.25 and 0.70 percent annually.

Here’s what that looks like on a Travis County home at the current median price:

• Home price: $450,000 (near Travis County’s median for detached homes)
• Down payment: 10 percent ($45,000)
• Loan amount: $405,000
• PMI rate: approximately 0.40 percent annually (for a buyer with 740+ credit score)
• Monthly PMI cost: approximately $135

Drop to a 5 percent down payment, and the math changes. At a 95 percent LTV with the same loan amount, your PMI rate would likely land between 0.60 and 1.00 percent, pushing monthly PMI to $200 or higher.

Your credit score matters significantly here. A borrower at 740 may pay 0.40 percent; the same borrower at 680 might pay 0.85 percent or more. That difference amounts to an additional $180 to $200 per month on a $450,000 loan. Understanding how your qualification profile affects all your costs, including PMI, is part of good pre-approval preparation.

When Is PMI Automatically Removed?

The Homeowners Protection Act of 1998 (HPA) sets federal rules for PMI cancellation on conventional loans. Here’s how the automatic rules work:

Scheduled termination at 78 percent LTV: When your loan balance falls to 78 percent of the original purchase price based on your amortization schedule, your lender is required to cancel PMI automatically. This is based on scheduled payments, not actual home value appreciation. You do not need to request it.

Midpoint rule: At the midpoint of your loan term (year 15 on a 30-year mortgage), PMI must be cancelled regardless of your current LTV, as long as your payments are current.

On a 30-year fixed mortgage at 7 percent interest with a $405,000 loan amount and 10 percent down, scheduled termination at 78 percent LTV occurs around year 11 to 12 of the loan. That’s a long time to pay an extra $135 per month. Over 12 years at $135 per month, that adds up to more than $19,000 in total PMI costs. The case for removing it earlier is clear.

See also: How much down payment do you really need? for a full breakdown of how your initial equity position affects your long-term costs.

Three Ways to Remove PMI Earlier

1. Request cancellation when you reach 80 percent LTV through payments.

Once your loan balance drops to 80 percent of the original appraised value through regular payments, you can submit a written cancellation request. Your lender cannot decline a valid request as long as your payment history is clean and the property has not declined in value. Track your amortization schedule. When you’re approaching 80 percent LTV, contact your loan servicer in writing.

2. Request cancellation based on current appraised value.

If your home’s value has increased since purchase, your current LTV may already be at or below 80 percent even if your original LTV was higher. In this case, you can request PMI cancellation based on a new appraisal. Your servicer will typically require a certified appraisal and may apply a seasoning requirement, usually at least two years of payments on the loan.

Austin home values have shifted considerably over the past several years. A home purchased in 2021 may still appraise meaningfully above its purchase price depending on the neighborhood, even after 2023 corrections. A strong appraisal that establishes 80 percent LTV can end your PMI obligation immediately.

3. Refinance out of the loan.

If rates have moved in your favor or your equity position has strengthened significantly, refinancing into a new conventional loan at 80 percent LTV or below eliminates PMI from the new loan. This path makes sense when the rate reduction from a refinance and PMI elimination together produce enough monthly savings to cover the closing costs within a reasonable break-even period.

Use the break-even math: divide total closing costs by your monthly savings. If you’ll stay in the home long enough to recoup those costs, a refinance can be worth it. If you’re close to HPA automatic cancellation without a rate improvement available, waiting for scheduled termination is often the smarter move.

What About FHA Mortgage Insurance?

FHA loans use a different insurance structure called MIP (mortgage insurance premium). MIP includes an upfront premium paid at closing (1.75 percent of the loan amount) and an annual premium paid monthly, typically 0.55 percent on most FHA loans with less than 10 percent down.

The critical difference: on FHA loans originated after June 3, 2013 with less than 10 percent down, annual MIP stays for the life of the loan. The HPA automatic cancellation rules that apply to conventional PMI do not apply to FHA MIP. The only way to eliminate FHA life-of-loan MIP is to refinance into a conventional loan once you have sufficient equity.

This is one reason many buyers with solid credit start on an FHA loan when they have limited down payment funds, then refinance to conventional once they’ve built equity. A comparison of FHA and conventional loans can help you decide which structure works better for your situation from the start.

How to Think About PMI When You’re Budgeting

PMI is a cost, and it’s worth understanding, but it’s not always the wrong choice. For buyers who have the income to qualify and a solid down payment below 20 percent, PMI allows you to buy now instead of waiting years to save more. Whether waiting makes sense depends on your local market and how much home prices are likely to move during that window.

In Travis County, where prices have historically risen over time (with notable volatility in recent years), buyers who waited to save the full 20 percent sometimes found that rising prices offset the PMI savings. That’s a market-specific judgment call, not a universal rule.

When you’re running the affordability math, include PMI in your monthly payment estimate and understand when it will go away. That gives you a realistic picture of your total cost over the ownership period, not just the payment on day one.

Ready to Talk Through Your Options?

PMI questions are better answered with your specific numbers. The rate you’d pay, how long until you’d hit the 80 percent threshold, and whether a refinance to eliminate it makes sense all depend on your loan amount, credit profile, and how long you plan to stay in the home. Schedule a discovery call and we’ll walk through your options together, no pressure, no commitment, just clarity.

---

Ferrando Financial LLC | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to credit, income, and property qualification. PMI rates shown are illustrative ranges based on typical conventional loan programs as of May 2026; your actual rate will depend on your credit profile, LTV, and the insurer selected by your lender.