Private Mortgage Insurance Calculator
Work out the monthly PMI cost and when the cover has to end once the balance reaches 78 percent.
What it does
Private mortgage insurance, usually shortened to PMI, is a policy a lender can require when a borrower puts down less than 20 percent of the purchase price. The CFPB describes it as insurance that might be required on a conventional loan with a small down payment, and it is the lender that is protected, not the homeowner. The premium is most often collected monthly alongside the mortgage payment.
The cost is simple arithmetic: the insured balance times the annual premium rate, divided by twelve for the monthly charge. Freddie Mac puts the typical cost at about 30 to 70 dollars a month for every 100,000 dollars borrowed, and its own example of a 190,000 dollar loan at a 0.51 percent rate comes to 80.75 dollars a month.
The part that catches people out is when the cover ends. The CFPB explains that a servicer must automatically terminate PMI on the date the balance is scheduled to reach 78 percent of the original value of the home, and a borrower can ask for it earlier once the balance reaches 80 percent. The original value is generally the lower of the purchase contract price and the appraisal, not the amount that was borrowed, so with 10 percent down the cover ends on the balance rather than on the loan.
These rules come from the Homeowners Protection Act, and the CFPB notes that they apply to covered single family primary residence mortgages closed on or after July 29, 1999. Different arrangements exist for loans that are not conventional, and for insurance a lender pays itself.
The last practical point is that the premiums are pure cost if you never cancel the cover, and the calculator shows the running total, which is often the number that persuades people to make the extra payments that get the balance down faster.
How to use
- Enter the price you paid for the home.
- Enter your down payment as a percentage.
- Enter the annual PMI rate your lender quoted.
- Enter the note rate and the monthly principal and interest payment.
- Read the monthly premium and the balance at which the cover has to end.
- Read how many payments that takes and what the premiums add up to by then.
Formula
- L
- Loan amount, the purchase price less the down payment.
- r
- Annual PMI rate as a fraction.
- Original value
- The price of the home when you bought it, usually the lower of contract price and appraisal.
- i
- Monthly note rate, the annual rate divided by twelve.
- P
- Monthly principal and interest payment.
The calculation assumes a fixed rate loan with equal monthly payments and no extra payments, which is what the automatic termination rule is measured against. If you pay extra, the balance reaches 78 percent sooner, and your lender can usually cancel the cover on request once it reaches 80 percent. The rate used here is the one on your disclosure, and a lender can also price a change in it if your credit or the loan changes.
Worked example
Example: a $400,000 home with 10 percent down
Defaults: a $400,000 purchase price, 10 percent down, a 0.65 percent PMI rate, a 6.5 percent note rate and a $2,200 monthly payment.
- Down payment: 10% of $400,000 = $40,000, so the loan is $360,000.00.
- Annual premium: $360,000 x 0.0065 = $2,340 a year.
- Monthly premium: $2,340 / 12 = $195.00.
- The automatic termination balance is 78% of $400,000, which is $312,000.00.
- At 6.5% a year with a $2,200 payment the balance is $312,495.95 after payment 131 and $311,988.64 after payment 132.
- So the cover ends on payment 132, and the premiums up to then add up to $25,740.00.
- The tool shows $195.00, $360,000.00, $312,000.00, 132 payments and $25,740.00.
Reference table
| Down payment | Loan | PMI rate | Monthly PMI | Ends on payment |
|---|---|---|---|---|
| 5% | $380,000 | 0.90% | $285.00 | 109 payments |
| 10% | $360,000 | 0.65% | $195.00 | 132 payments |
| 15% | $340,000 | 0.45% | $127.50 | 66 payments |
| 20% | $320,000 | none | $0.00 | no cover needed |
Limits
- Applies to conventional loans on a primary residence, where the Homeowners Protection Act rules apply.
- Uses the balance schedule of a fixed rate loan with no extra payments.
- The premium rate is the one your lender quotes, and it can change if the loan is refinanced or repriced.
- Says nothing about the cost of the alternative, which is a larger down payment or a government backed loan.
Common mistakes
- Working out 78 percent of the loan amount instead of 78 percent of the original value of the home.
- Confusing the 80 percent request threshold with the 78 percent automatic termination date.
- Forgetting that the payment used here should not include the PMI, the taxes or the insurance.
- Assuming extra payments do not matter, when they bring the termination date forward.
- Comparing the premium with the cost of a bigger down payment without adding in the interest saved on the smaller loan.
Try it yourself
Quick checks. Answers sit tucked under each question.
What is the monthly PMI on a $300,000 home with 5 percent down at a 0.9 percent rate?
The loan is $285,000, so the premium is $285,000 x 0.009 / 12 = $213.75 a month.
On the worked example, how much is paid in premiums before the cover ends?
Payment 132 at $195.00 a month is $25,740.00 in total.
Why does the cover end sooner with a bigger down payment?
Because the loan starts smaller, so the balance reaches 78 percent of the original value in fewer payments. The 10 percent example ends on payment 132, while the 5 percent example ends on payment 109.
Questions
What is private mortgage insurance?
A policy a lender can require when the down payment is under 20 percent of the price. It protects the lender against the borrower defaulting, and the premium is usually added to the monthly payment.
When does PMI have to end?
The servicer must cancel it automatically once the balance is scheduled to reach 78 percent of the original value of the home, provided the payments are current. You can ask for it earlier at 80 percent.
What is the original value?
Generally the lower of the purchase contract price and the purchase appraisal, so the price of the home when you bought it. It is not the amount you borrowed.
How much does PMI usually cost?
Freddie Mac puts it at about 30 to 70 dollars a month for every 100,000 dollars borrowed, which is roughly 0.36 to 0.84 percent a year, and the rate depends on your credit and the loan to value ratio.
Can I pay it off early with extra payments?
Yes. Extra payments lower the balance faster, so the 78 percent point arrives sooner, and a lender will usually cancel the cover on request once the balance reaches 80 percent.
Is there an alternative to PMI?
A larger down payment avoids it, and a government backed loan such as an FHA or VA loan comes with its own mortgage insurance that works differently.
Sources
- Consumer Financial Protection Bureau: what is private mortgage insurance?
- Consumer Financial Protection Bureau: when can I remove private mortgage insurance from my loan?
- Freddie Mac: breaking down private mortgage insurance