Estimate your monthly Private Mortgage Insurance (PMI) cost. PMI is typically required by lenders when your down payment is less than 20% of the home's purchase price.
The total amount you are borrowing for the mortgage.
The ratio of your loan amount to the home's appraised value (e.g., 90% if you have a 10% down payment).
The total duration of your mortgage loan.
Estimated Monthly PMI
$0.00
$0.00
Annual PMI
0.00%
PMI Rate
0.00%
LTV
PMI Rate is determined by LTV and credit score. Annual PMI = Loan Amount * PMI Rate. Monthly PMI = Annual PMI / 12.
PMI Rate Factors
Credit Score Range
LTV Ratio
Estimated PMI Rate (%)
800+
≤ 90%
0.3% – 0.5%
800+
90%+
0.5% – 0.7%
740-799
≤ 90%
0.4% – 0.6%
740-799
90%+
0.6% – 0.8%
670-739
≤ 90%
0.5% – 0.8%
670-739
90%+
0.7% – 1.0%
580-669
≤ 90%
0.7% – 1.1%
580-669
90%+
0.9% – 1.4%
<580
Any
1.0% – 1.7%+
Estimated PMI vs. Loan Amount
Estimated Monthly PMILoan Amount
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance, commonly known as PMI, is an insurance policy that protects the mortgage lender if a 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. PMI essentially acts as a safety net for the lender, compensating them for the increased risk associated with a lower down payment. Borrowers pay for this insurance, usually as a monthly premium added to their mortgage payment, until they build sufficient equity in their home (typically reaching 20% equity) or pay off the loan.
Who Should Use PMI Information?
Anyone purchasing a home with a down payment less than 20% on a conventional mortgage will likely encounter PMI. This includes first-time homebuyers who may have limited savings for a down payment, individuals looking to purchase a more expensive home than their current savings allow for a 20% down payment, and those who prioritize having cash reserves for other expenses over a larger initial down payment. Understanding how to calculate PMI is crucial for budgeting accurately and making informed financial decisions throughout the homebuying process.
Common Misconceptions About PMI
One common misconception is that PMI is the same as FHA mortgage insurance (MIP). While both protect lenders, they apply to different loan types and have different structures. Another misconception is that PMI is a one-time fee; in reality, it's usually a recurring monthly cost. Many also believe PMI is non-negotiable, but the rate can vary significantly based on creditworthiness and LTV, and it can eventually be removed once sufficient equity is established. Finally, some homeowners mistakenly think PMI is required for the entire life of the loan; federal law mandates its cancellation under certain conditions.
PMI Formula and Mathematical Explanation
Understanding how to calculate PMI on a mortgage involves a few key steps. The core of the calculation relies on determining an appropriate PMI rate, which is then applied to the loan amount.
Step-by-Step Derivation
Determine the PMI Rate: This is the most variable part. Lenders assess your risk based primarily on your credit score and the Loan-to-Value (LTV) ratio. A higher credit score and a lower LTV generally result in a lower PMI rate. The table above provides typical ranges.
Calculate Annual PMI: Once you have an estimated PMI rate, you multiply it by the total loan amount.
Calculate Monthly PMI: Divide the Annual PMI by 12 to get the monthly premium that will typically be added to your mortgage payment.
Variable Explanations
Here are the key variables involved in calculating PMI:
Variable
Meaning
Unit
Typical Range
Loan Amount
The total principal borrowed for the mortgage.
USD ($)
$50,000 – $1,000,000+
Credit Score
A numerical representation of your creditworthiness.
Score
300 – 850
LTV Ratio
The ratio of the loan amount to the property's appraised value.
Percentage (%)
Typically 80% – 97% (for loans requiring PMI)
PMI Rate
The annual percentage charged for the PMI policy.
Percentage (%)
0.3% – 1.7%+
Annual PMI
The total cost of PMI for one year.
USD ($)
Loan Amount * PMI Rate
Monthly PMI
The portion of the annual PMI paid each month.
USD ($)
Annual PMI / 12
The formula for calculating the estimated monthly PMI is:
It's important to note that the 'Estimated PMI Rate' is derived from a combination of your credit score and LTV ratio, often using lender-specific pricing guidelines.
Practical Examples (Real-World Use Cases)
Let's look at a couple of scenarios to illustrate how PMI is calculated.
Example 1: First-Time Homebuyer
Scenario: Sarah is buying her first home. The purchase price is $300,000. She has saved $30,000 for a down payment, which is 10% of the purchase price. Her credit score is 750.
Loan Amount: $300,000 – $30,000 = $270,000
LTV Ratio: ($270,000 / $300,000) * 100 = 90%
Credit Score: 750 (Very Good)
Estimated PMI Rate: Based on the table, a 750 credit score with 90% LTV falls into the 0.6% – 0.8% range. Let's use 0.7% for calculation.
Annual PMI: $270,000 * 0.007 = $1,890
Monthly PMI: $1,890 / 12 = $157.50
Interpretation: Sarah will likely pay an additional $157.50 per month for PMI until her equity reaches 20%. This cost needs to be factored into her monthly housing budget.
Example 2: Home Upgrade with Lower Down Payment
Scenario: Mark and Lisa are upgrading their home. The new home costs $500,000. They have $50,000 for a down payment (10%). Their combined credit score is 680.
Loan Amount: $500,000 – $50,000 = $450,000
LTV Ratio: ($450,000 / $500,000) * 100 = 90%
Credit Score: 680 (Good)
Estimated PMI Rate: With a 680 credit score and 90% LTV, the rate is likely in the 0.7% – 1.0% range. Let's use 0.9% for this calculation.
Annual PMI: $450,000 * 0.009 = $4,050
Monthly PMI: $4,050 / 12 = $337.50
Interpretation: Mark and Lisa will need to budget an extra $337.50 per month for PMI. This higher PMI cost compared to Sarah's is due to their lower credit score and the same LTV ratio, reflecting the lender's increased perceived risk.
How to Use This PMI Calculator
Our PMI calculator is designed to give you a quick and easy estimate of your potential monthly PMI costs. Follow these simple steps:
Step-by-Step Instructions
Enter Loan Amount: Input the total amount you plan to borrow for your mortgage.
Select Credit Score: Choose the credit score range that best represents your estimated score. This is a critical factor in determining your PMI rate.
Input LTV Ratio: Enter the Loan-to-Value ratio as a percentage. If you know your down payment amount and the home's value, you can calculate this as (Loan Amount / Home Value) * 100.
Enter Loan Term: Specify the length of your mortgage in years (e.g., 15, 30). While the loan term doesn't directly affect the initial PMI rate, it's a standard mortgage input.
Click 'Calculate PMI': The calculator will process your inputs and display the estimated monthly PMI, annual PMI, the estimated PMI rate, and the LTV used.
How to Read Results
Estimated Monthly PMI: This is the primary result – the approximate amount you'll add to your monthly mortgage payment for PMI.
Annual PMI: The total cost of PMI over a full year.
PMI Rate: The estimated annual percentage rate applied to your loan amount to determine PMI.
LTV: Confirms the Loan-to-Value ratio used in the calculation.
Decision-Making Guidance
Use these results to understand the true cost of homeownership. If the calculated PMI significantly impacts your budget, consider strategies like saving for a larger down payment to avoid or reduce PMI, exploring loans that don't require PMI (though they may have other costs), or improving your credit score before applying for a mortgage. Remember, PMI is typically temporary, and you can often request its removal once you reach 20% equity.
Key Factors That Affect PMI Results
Several elements influence the PMI rate and, consequently, your monthly payment. Understanding these factors can help you strategize to minimize your PMI costs.
1. Credit Score
This is arguably the most significant factor. Lenders view borrowers with higher credit scores as less risky. A score above 740 typically secures the lowest PMI rates, while scores below 670 will generally result in higher premiums. Improving your credit score before applying can lead to substantial savings.
2. Loan-to-Value (LTV) Ratio
The LTV ratio directly measures the lender's risk. A higher LTV (meaning a smaller down payment) indicates greater risk, leading to higher PMI rates. Conversely, a lower LTV (larger down payment) reduces the lender's risk and often results in lower PMI costs. Aiming for at least 10-15% down can make a difference, though 20% eliminates PMI entirely.
3. Loan Type
PMI is specific to conventional loans. FHA loans have Mortgage Insurance Premiums (MIP), which work similarly but have different structures and often apply for the life of the loan. VA loans and USDA loans typically do not require PMI or MIP for eligible borrowers.
4. Property Type and Occupancy
While less common, some lenders might adjust PMI rates based on the property type (e.g., single-family home vs. condo) or whether it's a primary residence, second home, or investment property. Primary residences usually have the most favorable rates.
5. PMI Provider
Different private mortgage insurers have slightly different pricing models. While lenders often have preferred providers, there can be some variation in the rates offered by competing PMI companies, though this is less controllable by the borrower.
6. Loan Term and Structure
While the loan term (e.g., 15 vs. 30 years) doesn't directly set the PMI rate, it affects how long you'll pay it and the total amount paid over time. Some lenders might offer different PMI structures (e.g., single premium paid upfront) which can impact the overall cost, though monthly payments are most common.
Frequently Asked Questions (FAQ)
What is the difference between PMI and MIP?
PMI (Private Mortgage Insurance) is for conventional loans with less than 20% down payment. MIP (Mortgage Insurance Premium) is for FHA loans, regardless of down payment size, and often lasts for the life of the loan. Both protect lenders against borrower default.
How long do I have to pay PMI?
Under the Homeowners Protection Act of 1998, lenders must automatically terminate PMI when your loan balance reaches 78% of the original home value (assuming you're current on payments). You can also request cancellation when your equity reaches 20% of the original value, or 25% through certain refinancing options.
Can I avoid paying PMI?
Yes, the most straightforward way to avoid PMI is by making a down payment of 20% or more on a conventional loan. Other options include exploring loans like VA loans (for eligible veterans) or USDA loans (for rural properties), which don't require PMI, or considering a lender-paid PMI option where the lender covers the cost in exchange for a slightly higher interest rate.
Does PMI affect my credit score?
Paying PMI itself does not directly impact your credit score. However, the factors that determine your PMI rate (like your credit score and payment history) are crucial for your credit score. Consistently paying your mortgage, including the PMI portion, on time is essential for maintaining a good credit standing.
What happens if I stop paying PMI?
Stopping payment of PMI without proper cancellation or reaching the required equity level is considered mortgage default. This can lead to late fees, negative impacts on your credit score, and potentially foreclosure. Always follow the official procedures for PMI cancellation.
Can PMI rates change over time?
The PMI rate is typically fixed for the life of the PMI policy, based on the conditions at the time the loan was originated. However, the PMI *requirement* can end once you reach sufficient equity. If you refinance your mortgage, you might get a new PMI rate or eliminate it depending on the new loan's terms and your equity.
Is PMI tax-deductible?
In the past, PMI premiums were sometimes deductible as itemized medical expenses, but this deduction expired at the end of 2021. Currently, PMI is generally not tax-deductible for most homeowners. Always consult with a tax professional for advice specific to your situation.
What is lender-paid PMI?
Lender-paid PMI (LP-PMI) is an arrangement where the lender pays the PMI premium on your behalf. To offset this cost, the lender typically charges a higher interest rate on your mortgage or a one-time fee at closing. This can result in a lower monthly payment compared to borrower-paid PMI, but you'll pay more interest over the life of the loan.