Private Mortgage Insurance (PMI) is a type of mortgage insurance that is required by lenders when a borrower is taking out a conventional loan and has a down payment of less than 20% of the purchase price. PMI protects the lender, not the borrower, in the event that the borrower defaults on the loan. Essentially, it reduces the risk for the lender when they are financing a significant portion of the property's value.
How is PMI Calculated?
The exact cost of PMI can vary significantly between lenders and is influenced by several factors. Lenders use it as a way to compensate for the increased risk associated with a lower down payment. The typical range for PMI premiums is between 0.5% and 1.5% of the original loan amount annually. This annual premium is usually divided into monthly payments and added to your total mortgage payment.
The key factors that determine your PMI rate include:
Loan-to-Value (LTV) Ratio: This is the most significant factor. The higher your LTV (meaning the smaller your down payment relative to the home's value), the higher your PMI premium will likely be.
Credit Score: Borrowers with higher credit scores are typically considered lower risk and may qualify for lower PMI rates. Lenders often have different PMI pricing tiers based on credit score ranges.
Loan Term: While less impactful than LTV or credit score, the length of the loan can sometimes play a small role.
Loan Type: Fixed-rate and adjustable-rate mortgages might have slightly different PMI considerations.
PMI Calculator Explained
This calculator provides an estimated annual and monthly PMI cost based on the information you provide. It uses common industry ranges for PMI premiums, which typically fall between 0.5% and 1.5% of the loan amount per year, with adjustments for credit score.
The Calculation Process:
Loan Amount: Calculated as (Home Purchase Price – Down Payment Amount).
Loan-to-Value (LTV) Ratio: Calculated as (Loan Amount / Home Purchase Price) * 100%.
Estimated PMI Rate: This is the most variable part. Our calculator uses a tiered approach based on common LTV thresholds and credit scores:
For LTV > 90% and Credit Score < 700: ~1.25% – 1.5%
For LTV > 90% and Credit Score 700-759: ~1.00% – 1.25%
For LTV > 90% and Credit Score >= 760: ~0.75% – 1.00%
For LTV 80%-90% and Credit Score < 700: ~1.00% – 1.25%
For LTV 80%-90% and Credit Score 700-759: ~0.80% – 1.00%
For LTV 80%-90% and Credit Score >= 760: ~0.50% – 0.75%
(Note: These are estimates. Actual PMI rates will be determined by your specific lender.)
Monthly PMI Premium: Calculated as (Annual PMI Premium / 12).
When is PMI Required?
PMI is typically required on conventional loans if your down payment is less than 20% of the home's purchase price. Once your LTV ratio reaches 80%, you can usually request to have PMI removed. By law, lenders must automatically terminate PMI once your LTV reaches 78% (meaning you have paid off 22% of the principal balance of the original loan), provided you are current on your mortgage payments.
Should You Pay PMI?
While PMI adds to your monthly housing cost, it's often a necessary step to homeownership for those who don't have a 20% down payment. The alternative would be to save up for a larger down payment, which could delay your home purchase. It's important to compare loan offers and understand the PMI rates quoted by different lenders, as they can vary.
function calculatePMI() {
var homePrice = parseFloat(document.getElementById("homePrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value); // Not directly used in PMI calculation but good to have for context
var interestRate = parseFloat(document.getElementById("interestRate").value); // Not directly used in PMI calculation but good to have for context
var creditScore = parseFloat(document.getElementById("creditScore").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Input validation
if (isNaN(homePrice) || homePrice <= 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(loanTerm) || loanTerm <= 0 ||
isNaN(interestRate) || interestRate < 0 ||
isNaN(creditScore) || creditScore = homePrice) {
resultDiv.innerHTML = "Down payment cannot be greater than or equal to the home price.";
return;
}
var loanAmount = homePrice – downPayment;
var ltv = (loanAmount / homePrice) * 100;
var annualPMIRate;
// Determine estimated PMI rate based on LTV and Credit Score
if (ltv >= 90) {
if (creditScore = 700 && creditScore = 760
annualPMIRate = 0.90; // Average of 0.75-1.00
}
} else if (ltv >= 80 && ltv < 90) {
if (creditScore = 700 && creditScore = 760
annualPMIRate = 0.65; // Average of 0.50-0.75
}
} else {
// PMI is typically not required if LTV is 80% or less
resultDiv.innerHTML = "PMI is generally not required for down payments of 20% or more.";
return;
}
var annualPMIAmount = loanAmount * (annualPMIRate / 100);
var monthlyPMIAmount = annualPMIAmount / 12;
resultDiv.innerHTML = "Estimated Monthly PMI: $" + monthlyPMIAmount.toFixed(2) + "" +
"(Estimated Annual PMI: $" + annualPMIAmount.toFixed(2) + " at " + annualPMIRate.toFixed(2) + "% of loan amount)";
}