PMI Calculator
Calculate monthly Private Mortgage Insurance (PMI) costs based on down payment, credit score, and LTV. Estimate when PMI will automatically cancel.
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What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is a type of insurance policy required by conventional mortgage lenders if your down payment is less than 20% of the home purchase price. It is important to realize that PMI does not protect you, the borrower; it protects the lender if you stop making mortgage payments and your home goes into foreclosure.
PMI is structured as a monthly premium that is added to your monthly mortgage payment. Once you pay down your loan balance to 80% or 78% of your home's value, you can request to cancel your PMI. This PMI calculator estimates your monthly PMI cost and calculates the amortization timeline to determine when your insurance will automatically cancel.
How the PMI Rate is Determined
Your monthly PMI cost is not a fixed flat fee. Instead, the rate varies based on three primary factors:
- Loan-to-Value (LTV) Ratio: Borrowers with higher LTV ratios (like 95% or 97%) present more risk to lenders and pay higher PMI rates than those with lower ratios (like 85% or 90%).
- Credit Score: Lenders check your FICO credit score to assess risk. Borrowers with excellent credit scores (760+) pay significantly lower PMI premiums than those with lower credit scores (620 to 679).
- Loan Type: 30-year fixed mortgages have different PMI premium structures than 15-year terms or adjustable-rate mortgages.
The annual PMI premium typically ranges from 0.30% to 2.10% of your total loan balance.
Step-by-Step PMI Calculation Example
Imagine you buy a home priced at $350,000 with a 5% down payment ($17,500), leaving a mortgage balance of $332,500. Your credit score is 730:
- Calculate Loan-to-Value (LTV) Ratio: \(\$332,500 / \$350,000 = \mathbf{95.0\%}\).
- Determine PMI Rate: For an LTV of 95% and a credit score in the 720-759 range, the estimated annual PMI rate is 0.70%.
- Calculate Monthly PMI: \((332,500 \times 0.70\%) / 12 = \mathbf{\$193.96}\) per month.
- Calculate Total Cost: It takes approximately 7 years (84 payments) of normal amortization to reduce the balance below the 78% LTV cancellation threshold (\$273,000). Your total lifetime PMI paid will be: \(\$193.96 \times 84 = \mathbf{\$16,292.64}\).
Frequently Asked Questions (FAQ)
What is Private Mortgage Insurance (PMI)?
PMI is an insurance policy conventional lenders require if you put less than 20% down on a home. It protects the lender from financial loss if you default and fail to repay your mortgage.
How much does PMI cost per month?
PMI typically costs between 0.3% and 2.1% of your total loan amount annually. For a ,000 loan, this translates to roughly to per month, depending on your credit score and LTV ratio.
When does PMI automatically cancel?
Under federal law (Homeowners Protection Act), lenders must automatically terminate monthly PMI once your loan balance is scheduled to reach 78% of your home's original purchase price, provided your account is current.
Can I request to cancel PMI early?
Yes. You can request PMI cancellation once your loan balance drops to 80% of the home's original value. You must submit a written request, have a clean payment history, and prove that your home value has not declined.
How can I avoid paying PMI?
You can avoid PMI by putting at least 20% down, obtaining a VA or USDA loan (which have no PMI, though USDA has annual fees), using a piggyback loan (such as an 80-10-10), or choosing lender-paid mortgage insurance (LPMI).
What is the difference between conventional PMI and FHA MIP?
Conventional PMI can be cancelled once you reach 20% equity. FHA Mortgage Insurance Premium (MIP) is backed by the government and typically remains on the loan for the entire 30-year term, requiring you to refinance to remove it.
What is Lender-Paid Mortgage Insurance (LPMI)?
With LPMI, the lender pays your upfront mortgage insurance premium. In exchange, they charge you a higher interest rate on the loan, which remains for the life of the mortgage and cannot be cancelled like monthly PMI.
Does PMI build equity in my home?
No. PMI is strictly an insurance fee paid to protect the lender. It does not count toward your mortgage principal and does not build any home equity for the homeowner.
Is PMI tax-deductible?
The federal tax deduction for mortgage insurance premiums has expired. Under current tax laws, monthly PMI premiums are not tax-deductible on your federal tax return.
Does my home's value increase help remove PMI?
Yes. If rising home values or home renovations increase your equity beyond 20%, you can ask your lender to cancel PMI early, which usually requires ordering a new appraisal to prove the value.