Determine when you can eliminate Private Mortgage Insurance (PMI) on your home loan.
Understanding PMI and How to Eliminate It
Private Mortgage Insurance (PMI) is an insurance policy that protects your mortgage lender if you default on your loan. It's typically required when you purchase a home with a down payment of less than 20% of the home's purchase price. While PMI protects the lender, you, the homeowner, pay for the premiums, usually as part of your monthly mortgage payment.
Why Eliminate PMI?
PMI is an additional cost that doesn't build equity in your home. By eliminating PMI, you can reduce your monthly housing expenses, freeing up money that can be used for other financial goals like saving, investing, or paying down your mortgage faster.
How PMI is Eliminated
There are two primary ways to get rid of PMI:
Automatic Termination: Based on the original loan terms, your lender is required to automatically terminate PMI when your loan-to-value (LTV) ratio reaches 78% (meaning you've paid down 22% of the original purchase price). This is based on the original amortization schedule.
Request for Termination: You can request to have PMI removed when your LTV ratio reaches 80% (you've paid down 20% of the original purchase price). To do this, you'll typically need to provide an updated appraisal to prove your home's current value and ensure your mortgage payments are current.
This calculator focuses on the scenario where you might proactively request PMI removal once your LTV is 80%, or when you're approaching the 78% threshold. It also helps visualize the monthly savings you can achieve.
The Math Behind PMI Elimination
The key metric for determining PMI elimination is the Loan-to-Value (LTV) ratio. It's calculated as:
LTV Ratio = (Current Loan Balance / Current Home Value) * 100
Lenders generally allow PMI to be removed when the LTV ratio falls below 80% (often requiring an appraisal) or automatically terminates at 78% LTV based on the original loan amortization.
How This Calculator Works
This calculator takes your current home value, your remaining loan balance, and your monthly PMI cost to help you understand:
Your current LTV ratio.
The estimated monthly savings once PMI is removed.
An indication of when you might reach the 80% LTV threshold for requesting removal.
Example Scenario
Let's say you purchased a home for $300,000 with a down payment of $45,000 (15%), meaning your initial loan balance was $255,000. You've been paying your mortgage and now your current loan balance is $250,000. Your home value has remained steady at $300,000, and you pay $150 per month for PMI.
Current Home Value: $300,000
Current Loan Balance: $250,000
Monthly PMI Cost: $150
Using the LTV formula: ($250,000 / $300,000) * 100 = 83.33% LTV. At this point, you haven't reached the 80% threshold to request removal. You would need to pay down your loan balance further or see your home value increase significantly to reach that target.
If your loan balance dropped to $240,000 while the home value stayed at $300,000, your LTV would be ($240,000 / $300,000) * 100 = 80% LTV. At this point, you could contact your lender, potentially provide an appraisal, and request to remove PMI. Once removed, you would save $150 per month.
function calculatePMIElimination() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var loanBalance = parseFloat(document.getElementById("loanBalance").value);
var pmiCostMonthly = parseFloat(document.getElementById("pmiCostMonthly").value);
var resultDiv = document.getElementById("result");
resultDiv.classList.add("hidden"); // Hide previous results
if (isNaN(homeValue) || homeValue <= 0) {
alert("Please enter a valid current home value.");
return;
}
if (isNaN(loanBalance) || loanBalance < 0) {
alert("Please enter a valid current loan balance.");
return;
}
if (isNaN(pmiCostMonthly) || pmiCostMonthly homeValue) {
alert("Loan balance cannot be greater than home value.");
return;
}
var ltv = (loanBalance / homeValue) * 100;
var savings = pmiCostMonthly;
var resultText = "";
resultText += "Your current LTV is: " + ltv.toFixed(2) + "%.";
if (ltv <= 80) {
resultText += "Congratulations! Your LTV is at or below 80%. You may be eligible to request PMI removal. Your estimated monthly savings by eliminating PMI would be: $" + savings.toFixed(2) + ".";
} else if (ltv <= 78) {
resultText += "Your LTV is at or below 78%. PMI should have been automatically terminated. If not, contact your lender. Your estimated monthly savings by eliminating PMI would be: $" + savings.toFixed(2) + ".";
}
else {
resultText += "You have not yet reached the 80% LTV threshold to request PMI removal. Continue making payments or consider refinancing/appraisal if home value has increased significantly. Once PMI is removed, you could save an estimated $" + savings.toFixed(2) + " per month.";
}
resultDiv.innerHTML = resultText;
resultDiv.classList.remove("hidden");
}