What is private mortgage insurance and when can I drop it?

Private mortgage insurance (PMI) is a policy that protects the lender if you default on your loan. It's typically required when you put less than 20% down on a conventional mortgage. PMI usually costs between 0.5% and 1.5% of the loan amount annually, added to your monthly payment. You can request cancellation once your loan balance reaches 80% of the home's original value, either through payments or appreciation. Under the Homeowners Protection Act, lenders must automatically cancel PMI when your balance reaches 78% of the original purchase price, assuming you're current on payments. You can also request early cancellation if your home has appreciated significantly, though the lender will typically require a new appraisal to confirm the value.