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Disclaimer: Results shown are estimates for educational purposes only and do not constitute financial, tax, legal, or investment advice. Actual payments vary based on lender, credit score, loan type, and local assessments. Consult a licensed mortgage professional for your specific situation.
What Is PMI and When Is It Required?
Private Mortgage Insurance (PMI) is required on conventional loans when your down payment is less than 20% of the home's purchase price. It protects the lender — not you — in case of default. Understanding PMI is essential because it can add $100–$500/month to your payment.
How PMI Is Calculated
PMI is typically expressed as an annual percentage of the original loan amount, ranging from 0.5%–1.5% depending on your credit score, loan-to-value ratio (LTV), and lender. On a $320,000 loan with a PMI rate of 0.85%, your annual PMI cost is $2,720 — or $227/month.
| Credit Score | LTV 90–95% | LTV 85–90% | LTV 80–85% |
|---|---|---|---|
| 760+ | 0.41% | 0.19% | 0.11% |
| 720–759 | 0.68% | 0.38% | 0.23% |
| 680–719 | 0.95% | 0.61% | 0.40% |
| 640–679 | 1.35% | 0.99% | 0.78% |
| 620–639 | 1.58% | 1.21% | 1.00% |
How to Remove PMI
- Request cancellation at 20% equity: Once your loan balance is 80% or less of the original purchase price, submit a written cancellation request to your servicer.
- Automatic cancellation at 22%: Lenders must automatically cancel PMI when your scheduled payments reach 78% of original value (under the Homeowners Protection Act of 1998).
- Refinance: If your home has appreciated significantly, refinancing at 80% or less LTV eliminates PMI on the new loan.
- New appraisal: Some lenders allow PMI removal based on a new appraisal showing 20%+ equity, even without reaching the original threshold through payments.
Alternatives to PMI
- 80-10-10 Piggyback Loan: A first mortgage for 80%, a second mortgage (HELOC or fixed) for 10%, and 10% down. You avoid PMI but pay interest on the second loan — run the numbers to compare.
- Lender-Paid PMI (LPMI): The lender covers the PMI premium in exchange for a slightly higher interest rate for the life of the loan. Works well if you plan to sell or refinance within 5–7 years.
- VA or USDA Loan: Eligible veterans and rural buyers can purchase with no down payment and no PMI through these government-backed programs.