Understanding Private Mortgage Insurance (PMI) and How to Calculate It
Private Mortgage Insurance (PMI) is a type of mortgage insurance that protects the mortgage lender if the borrower defaults on their loan. It is typically required by lenders when a borrower makes a down payment of less than 20% of the home's purchase price on a conventional loan.
Why is PMI Required?
For lenders, a down payment of less than 20% signifies a higher risk. PMI acts as a safeguard, reducing the lender's potential losses if the borrower cannot make their monthly payments and the home's value has decreased significantly.
How is PMI Calculated?
PMI premiums are not fixed and vary based on several factors. While there isn't a single universal formula that every lender uses down to the dollar, the calculation generally involves:
Loan-to-Value (LTV) Ratio: This is the primary driver. It's calculated by dividing the loan amount by the home's appraised value. A higher LTV (meaning a lower down payment) generally results in higher PMI premiums. The formula is:
LTV Ratio (%) = (Loan Amount / Home Value) * 100
Credit Score: Borrowers with higher credit scores are seen as less risky and typically qualify for lower PMI rates. Rates are often tiered based on credit score ranges.
Loan Type and Term: While less impactful than LTV and credit score, the type of loan (e.g., fixed-rate vs. adjustable-rate) and its term can also influence the premium.
Lender's Policies: Each PMI provider and lender has its own specific rate chart.
The annual PMI premium is typically expressed as a percentage of the loan amount, often ranging from 0.5% to 1.5% (or even higher for lower credit scores). This annual premium is then divided by 12 to determine the monthly payment.
The PMI Calculation Formula Used Here:
This calculator uses an estimated annual PMI rate based on common industry averages. The rate (%) applied to the loan amount is approximated using the following logic:
Base Rate: A baseline annual premium rate is determined.
LTV Adjustment: The rate is adjusted upwards as the LTV ratio increases.
Credit Score Adjustment: The rate is further adjusted based on the selected credit score tier, with lower scores leading to higher rates.
The estimated annual premium is calculated as:
Annual PMI Premium = Loan Amount * (Estimated Annual PMI Rate / 100)
And the monthly PMI cost is:
Monthly PMI Cost = Annual PMI Premium / 12
When Can You Cancel PMI?
PMI can typically be canceled once your LTV ratio reaches 78% (meaning you've paid down 22% of the original loan amount), provided your loan has been current on payments. You can also request cancellation when your LTV reaches 80%. In some cases, lenders may automatically terminate PMI when the LTV reaches 78%, but it's always best to confirm with your lender.
Disclaimer: This calculator provides an estimate for informational purposes only. Actual PMI costs may vary based on your specific lender, loan terms, and final underwriting. Consult with your mortgage lender for precise figures.
function calculatePMI() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var creditScore = parseInt(document.getElementById("creditScore").value);
var loanTerm = parseInt(document.getElementById("loanTerm").value);
var resultDiv = document.getElementById("result");
// Input validation
if (isNaN(homeValue) || homeValue <= 0) {
resultDiv.innerHTML = "Please enter a valid Home Value.";
return;
}
if (isNaN(loanAmount) || loanAmount homeValue) {
resultDiv.innerHTML = "Loan Amount cannot be greater than Home Value.";
return;
}
if (isNaN(loanTerm) || loanTerm = 95) {
if (creditScore >= 700) {
annualPmiRate = 1.00; // 1.00%
} else {
annualPmiRate = 1.20; // 1.20%
}
} else if (ltvRatio >= 90) {
if (creditScore >= 760) {
annualPmiRate = 0.75; // 0.75%
} else if (creditScore >= 700) {
annualPmiRate = 0.90; // 0.90%
} else {
annualPmiRate = 1.10; // 1.10%
}
} else if (ltvRatio >= 85) {
if (creditScore >= 800) {
annualPmiRate = 0.55; // 0.55%
} else if (creditScore >= 760) {
annualPmiRate = 0.65; // 0.65%
} else if (creditScore >= 720) {
annualPmiRate = 0.70; // 0.70%
} else {
annualPmiRate = 0.85; // 0.85%
}
} else if (ltvRatio >= 80) { // Typically PMI is not required if LTV is 80% or less, but some lenders might still require it in specific cases, or this is the rate if you are slightly above 80%
if (creditScore >= 800) {
annualPmiRate = 0.50; // 0.50%
} else if (creditScore >= 760) {
annualPmiRate = 0.55; // 0.55%
} else if (creditScore >= 720) {
annualPmiRate = 0.60; // 0.60%
} else {
annualPmiRate = 0.75; // 0.75%
}
} else { // LTV <= 79.99% – PMI usually not required but we'll show 0 for clarity if user inputs it.
annualPmiRate = 0;
}
// Ensure we don't show PMI if LTV is typically not required
if (ltvRatio < 80) {
annualPmiRate = 0;
}
var annualPmiPremium = (loanAmount * annualPmiRate) / 100;
var monthlyPmiCost = annualPmiPremium / 12;
if (annualPmiRate === 0) {
resultDiv.innerHTML = "No PMI Required (LTV < 80%) Based on your LTV, PMI is typically not required.";
} else {
resultDiv.innerHTML = "$" + monthlyPmiCost.toFixed(2) + " Estimated Monthly PMI Cost";
}
}
function resetForm() {
document.getElementById("homeValue").value = "";
document.getElementById("loanAmount").value = "";
document.getElementById("creditScore").value = "800"; // Reset to default
document.getElementById("loanTerm").value = "";
document.getElementById("ltvRatio").value = "";
document.getElementById("result").innerHTML = "–";
}
// Add event listener to update LTV automatically when home value or loan amount changes
document.getElementById("homeValue").addEventListener("input", updateLtv);
document.getElementById("loanAmount").addEventListener("input", updateLtv);
function updateLtv() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
if (!isNaN(homeValue) && homeValue > 0 && !isNaN(loanAmount) && loanAmount >= 0) {
var ltvRatio = (loanAmount / homeValue) * 100;
document.getElementById("ltvRatio").value = ltvRatio.toFixed(2);
} else {
document.getElementById("ltvRatio").value = "";
}
}