The 20% Down Payment Myth, and When PMI Actually Ends

Ask why someone is renting instead of buying, and "I don't have 20% down" comes up constantly. It's the most-repeated number in home buying — and it's not a requirement. It's the threshold that skips one specific cost: private mortgage insurance (PMI).

What a smaller down payment actually costs

PMI protects the lender, not the buyer, when a conventional loan exceeds 80% of the home's value. It typically runs 0.3% to 1.5% of the loan balance per year, split into the monthly payment. On a $270,000 loan (a $300,000 home, 10% down), that's a range of about $67 to $338 a month depending on your rate — separate from the $1,673.70 in principal and interest on that loan at 6.5%.

The real trade-off isn't "PMI, or no house." It's PMI now versus years spent saving an extra $30,000-plus while rent and home prices keep moving — and PMI, unlike the interest on the loan itself, has a legal expiration date.

Federal law sets that date — not the lender's goodwill

The Homeowners Protection Act gives borrowers rights the servicer can't opt out of. The CFPB states them plainly:

"You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home."

That's the date you can act. There's also a date the servicer has to act on its own:

"Your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home" — provided you're current on payments.

And a backstop that applies no matter what the balance looks like:

"Your lender or servicer must end the PMI the month after you reach the midpoint of your loan's amortization schedule" — month 181 of a standard 30-year loan — again, as long as payments are current.

Three different triggers, and the first one to arrive is the one that counts.

How long PMI actually lasts, from paydown alone

Run the 78%-of-original-value threshold through a real amortization schedule — no appreciation assumed, just the ordinary monthly payment — and the answer is a specific, boring, calculable number of years:

Notice every row lands well before the 15-year midpoint backstop. That backstop exists for the cases ordinary amortization doesn't reach in time — but for a standard loan making standard payments, plain paydown gets there first. Home price appreciation, if it happens, only moves the date earlier: this table is the guaranteed worst case, assuming the home is worth exactly what you paid for it the whole time.

Run your own numbers

Change the price, the down payment, and the rate — the table shows cash needed, loan size and monthly payment side by side for 3.5%, 5%, 10% and 20% down, so you can see exactly what a smaller down payment buys you today against what it costs in PMI along the way.

When the smaller down payment is the better deal

Saving for 20% has a real cost too: years of rent, and a home price that may not wait. If a smaller down payment gets you in years sooner, PMI on a 10-year clock — sometimes under 9, as the table above shows — is a bounded, known cost, not an open-ended one. It's worth comparing against 20%-down only after keeping enough cash for closing costs (another 2-5% of the loan) and an emergency fund; draining every account to hit 20% and having nothing left for a broken furnace is its own kind of expensive.