Mortgage · Mortgage Charges
PMI vs. Homeowners Insurance: What's the Difference?
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You see two different insurance charges on your mortgage statement and wonder why you're paying twice. Private mortgage insurance (PMI) and homeowners insurance are separate products that protect different people, and only one of them can be cancelled once your equity grows.
| PMI (private mortgage insurance) | Homeowners insurance | |
|---|---|---|
| What it protects | The lender's investment if you default and the home sells for less than you owe | Your home and belongings against fire, storms, theft, and liability |
| Who it pays | Your lender | You, the homeowner |
| Who requires it | The lender, when your down payment is under 20% on a conventional loan | The lender, for as long as a mortgage exists; most owners keep it regardless |
| Typical cost | Roughly 0.2% to 2% of the original loan amount per year, based on credit and down payment | Varies widely by home value, location, and coverage; no fixed schedule |
| Can you cancel it? | Yes, once equity reaches about 20% to 22%, under the Homeowners Protection Act | No equity-based cancellation; required as long as the loan exists |
| Who you deal with | Your mortgage servicer | Your insurance carrier or agent |
Two Charges, Two Different Jobs
Homeowners insurance and PMI often get lumped together because both show up in your monthly payment. But they do completely different work. Homeowners insurance covers damage to your home and belongings from things like fire, storms, or theft. PMI covers your lender's risk if you stop making payments and the home is worth less than what's owed on it.
The Consumer Financial Protection Bureau draws this line clearly: homeowners insurance protects your property, while PMI protects the lender's investment in your loan. You pay the premium for both, but the benefit does not flow the same way.
Who Each Policy Actually Protects
With homeowners insurance, you are the beneficiary. If your roof is damaged in a storm, the payout goes toward repairing your home. You chose the policy, you can shop for a better rate, and you can switch carriers if you find better coverage. If you want to pressure-test that coverage before storm season, our sister site GoCheckMyStorm covers what a homeowners and flood policy should actually include.
With PMI, the lender is the beneficiary. If you default and the home sells for less than the loan balance, PMI pays the lender the difference, not you. You cannot shop around for a cheaper PMI policy the way you can for homeowners insurance, because the lender selects the PMI provider as part of underwriting.
How They Show Up On Your Mortgage Bill
Many mortgage payments bundle principal, interest, taxes, homeowners insurance, and PMI into one monthly draft through an escrow account. That single number on your statement can make it look like one combined cost, but your servicer's breakdown will list them as separate line items.
It's worth noting that FHA loans use a different insurance product called Mortgage Insurance Premium (MIP), which follows its own rules through HUD rather than the cancellation rights described below. If your loan is FHA-insured, HUD's guidance is the source to check, rather than assuming PMI rules apply.
What Each One Costs
PMI is usually quoted as an annual percentage of your original loan amount, commonly in the range of about 0.2% to 2% per year, with your exact rate driven by your credit score and how small your down payment was. On a $300,000 loan, a 1% rate works out to roughly $250 a month, and it disappears entirely once you cancel. Because it is a percentage of the loan, a larger down payment or a stronger credit profile lowers it.
Homeowners insurance is priced on an entirely different basis: the cost to rebuild your home and the risk of your location, not your loan balance. It varies widely from one home and state to the next, and unlike PMI there is no equity milestone that ends it. You keep paying it, and renewing it, for as long as you own the home. The two costs are not interchangeable, and dropping PMI does nothing to lower your insurance premium.
What Happens When You Cancel One vs. The Other
Homeowners insurance is not something you cancel based on your loan balance. Your lender requires continuous coverage for as long as the mortgage exists, because the home is collateral for the loan. If you want to change carriers, you replace the policy, you don't simply drop it.
PMI works differently. Under the Homeowners Protection Act, PMI on most conventional loans must automatically terminate once your balance reaches 78 percent of the home's original value, as long as you're current on payments. The law also allows a borrower to request cancellation earlier, once the balance reaches 80 percent of original value, by asking the servicer in writing.
That means PMI has a built-in expiration path tied to your equity. Homeowners insurance does not. You'll keep paying for homeowners insurance as long as you own the home and carry a mortgage that requires it.
Where PMI Cancellation Rights Come From
The Homeowners Protection Act of 1998 is the federal law that sets these PMI rules, and it's codified at 12 U.S.C. 4901. It covers both automatic termination and borrower-requested cancellation, and it applies to most single-family, owner-occupied conventional mortgages closed after the law took effect.
For homeowners who want to check the math on their own loan, the free PMI Cancellation Checker walks through the calculation using current balance and original home value. For the full set of steps, including what a servicer can and cannot ask for, the complete PMI cancellation playbook breaks down each stage of the process.
Putting a Request in Writing
Because PMI cancellation is a formal request under federal law, a written request creates a clearer record than a phone call alone. The free cancellation letter template gives homeowners a starting point that references rights under the Homeowners Protection Act, so the servicer has a clear paper trail to respond to.
None of this affects homeowners insurance. That policy stays in place, renews on its own schedule, and is a separate conversation with an insurance agent, not a mortgage servicer. This article is general education, not financial advice, and a servicer or a HUD-approved housing counselor can go through the specific terms of a loan in more detail.
Questions people ask
Can I cancel homeowners insurance the same way I cancel PMI?
No. PMI has a federal cancellation path tied to loan-to-value ratio under the Homeowners Protection Act. Homeowners insurance has no equity-based cancellation right, since a lender typically requires it for as long as the mortgage exists.
Does removing PMI mean I can stop paying homeowners insurance?
No. These are unrelated coverages. Removing PMI only affects the mortgage insurance line item. Homeowners insurance continues as long as the lender requires proof of coverage on the property.
Is FHA's MIP the same as PMI?
No. MIP is the mortgage insurance used on FHA-insured loans and follows separate HUD rules rather than the Homeowners Protection Act. HUD's program guidance is the place to check for FHA-insured loans.
Who handles a PMI cancellation request?
A mortgage servicer handles PMI cancellation requests. The free PMI Cancellation Checker can help estimate whether a balance already qualifies before reaching out.
How much does PMI cost compared to homeowners insurance?
They are priced on different bases, so they are not directly comparable. PMI is a percentage of your loan, commonly about 0.2% to 2% per year, and it ends when you cancel it. Homeowners insurance is priced on the cost to rebuild your home and your location's risk, varies widely, and continues for as long as you own the home.
Sources
- CFPB: What's the difference between private mortgage insurance and homeowners insurance?
- CFPB: What is private mortgage insurance (PMI)?
- Homeowners Protection Act of 1998, 12 U.S.C. 4901
- HUD: Single Family Housing Mortgage Insurance
- Freddie Mac: Single-Family Division Overview
This article is educational and is not financial or lending advice. Some links in our articles may earn us a commission at no cost to you, and never change what we recommend.
