Private Mortgage Insurance (PMI) is an insurance policy that protects the mortgage lender if you default on your loan. It's typically required by lenders when a homebuyer makes a down payment of less than 20% of the home's purchase price on a conventional loan. PMI ensures that the lender will still recover a portion of their investment if the borrower can no longer make payments.
Why is PMI Required?
When a borrower has a substantial down payment (20% or more), they have a significant equity stake in the home from the outset, reducing the lender's risk. A down payment below 20% means the borrower has less equity and thus represents a higher risk for the lender. PMI mitigates this risk.
How is PMI Calculated?
The cost of PMI is not a fixed rate and can vary significantly based on several factors:
Loan-to-Value (LTV) Ratio: This is the ratio of the loan amount to the appraised value or purchase price of the home, whichever is lower. A higher LTV (meaning a smaller down payment) generally results in higher PMI premiums.
Credit Score: Borrowers with higher credit scores are typically considered less risky and may qualify for lower PMI rates.
Loan Type and Term: Some loan programs might have different PMI structures.
Lender and PMI Provider: Rates can vary between different lenders and the private mortgage insurance companies they work with.
The annual PMI rate is usually expressed as a percentage of the original loan amount. This annual premium is then typically divided by 12 to arrive at the monthly payment.
The Formula Used in This Calculator:
The estimated annual PMI premium is calculated as:
This calculator uses the provided Loan Amount, Annual PMI Rate. While Credit Score and LTV are crucial factors influencing the actual PMI rate you'll be offered by a lender, this calculator uses your provided Annual PMI Rate directly for the calculation.
When Can You Remove PMI?
For most conventional loans, PMI can be canceled once your LTV reaches 80% (meaning you've paid down the loan to 80% of the home's original value). You can request cancellation at this point. Additionally, the Homeowners Protection Act of 1998 requires PMI to be automatically terminated when your LTV reaches 78% of the original loan amount, provided you are current on your mortgage payments.
function calculatePMI() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var ltvRatio = parseFloat(document.getElementById("ltvRatio").value);
var creditScore = parseFloat(document.getElementById("creditScore").value);
var annualPremiumRate = parseFloat(document.getElementById("annualPremiumRate").value);
var resultValue = document.getElementById("result-value");
if (isNaN(loanAmount) || loanAmount <= 0) {
resultValue.textContent = "Please enter a valid loan amount.";
return;
}
if (isNaN(ltvRatio) || ltvRatio 100) {
resultValue.textContent = "Please enter a valid LTV ratio between 1% and 100%.";
return;
}
if (isNaN(creditScore) || creditScore 850) {
resultValue.textContent = "Please enter a valid credit score between 300 and 850.";
return;
}
if (isNaN(annualPremiumRate) || annualPremiumRate 10) {
resultValue.textContent = "Please enter a valid annual PMI rate (e.g., 0.5% to 1.5%).";
return;
}
// Basic calculation using the provided annual rate.
// In reality, LTV and Credit Score significantly influence the *offered* annual rate.
// This calculator assumes the user *knows* their likely annual rate.
var annualPMIPremium = loanAmount * (annualPremiumRate / 100);
var monthlyPMIPayment = annualPMIPremium / 12;
resultValue.textContent = "$" + monthlyPMIPayment.toFixed(2);
}