PMI Calculator
Calculate private mortgage insurance costs: annual premium, monthly payment, and when PMI drops off at 80% LTV.
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How It Works
Private mortgage insurance (PMI) is required by lenders when your down payment is less than 20% of the home value. PMI protects the lender, not you, against default. It typically costs 0.5% to 1.5% of the loan amount annually and can be removed once your loan-to-value ratio reaches 80% through payments or appreciation.
The Formula
Monthly PMI = Annual PMI / 12
LTV = (Loan Balance / Home Value) x 100
PMI drops when LTV reaches 80%
Variables
- LTV — Loan-to-value ratio, the percentage of the home value that is financed by the mortgage
- PMI Rate — Annual PMI premium as a percentage of the loan amount, typically 0.5% to 1.5% depending on LTV and credit score
- 80% — The LTV threshold at which PMI can be removed under the Homeowners Protection Act
- 78% — The LTV at which lenders must automatically cancel PMI per federal law
Worked Example
On a $350,000 home with a $315,000 loan (10% down, 90% LTV) and a 0.75% PMI rate: annual PMI = $315,000 x 0.0075 = $2,362.50, or $196.88/month. At 6.5% interest on a 30-year term, it takes about 82 months (6.8 years) for the balance to reach $280,000 (80% LTV), at which point you can request PMI removal.
Practical Tips
- Request PMI cancellation in writing as soon as your loan balance reaches 80% of the original home value based on your payment schedule.
- A new appraisal showing increased home value can help you reach 80% LTV sooner and remove PMI early.
- Making extra principal payments accelerates reaching the 80% LTV threshold and reduces total PMI paid.
- FHA loans have mortgage insurance premiums (MIP) that work differently from conventional PMI and may last the life of the loan.
- Compare PMI costs between lenders since rates vary significantly based on your credit score, LTV, and the insurer.
Frequently Asked Questions
What is the difference between PMI and MIP?
PMI (private mortgage insurance) applies to conventional loans and can be removed at 80% LTV. MIP (mortgage insurance premium) applies to FHA loans and has both an upfront premium (1.75% of the loan) and annual premiums that may last the entire loan term if your down payment was less than 10%.
Can I avoid PMI without 20% down?
Yes, several options exist: lender-paid PMI (LPMI) rolls the cost into a higher interest rate, piggyback loans use a second mortgage to cover part of the down payment, and VA loans require no PMI regardless of down payment. Each option has trade-offs in total cost.
Does PMI automatically cancel?
Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price based on your amortization schedule. You can request cancellation earlier at 80% LTV, but the lender may require a current appraisal and good payment history.
How does credit score affect PMI rates?
Credit scores significantly impact PMI rates. A borrower with a 760+ score might pay 0.3% to 0.5% annually, while someone with a 680 score could pay 0.8% to 1.5%. Improving your credit score before buying can save thousands in PMI costs over the life of the policy.
Is PMI tax deductible?
The PMI tax deduction has been periodically extended and expired by Congress. As of the latest tax law, check IRS guidance for the current year. When available, it phases out for adjusted gross incomes above $100,000. Consult a tax professional for your specific situation.
Sources
- CFPB: What is Private Mortgage Insurance?
- Homeowners Protection Act of 1998 (HPA)
- Freddie Mac: Understanding PMI