How Is Private Mortgage Insurance Calculated?

Written by Chloe GoodshoreFebruary 9th, 20234 minute read

Private mortgage insurance (PMI) costs are calculated using a few different factors. Think: your loan amount, repayment terms, house value, credit score, and mortgage insurance plan.

If you make a down payment under 20%, you’ll end up paying somewhere between 0.19% and 1.86% of your loan amount in PMI each year. However, if you start off paying PMI, you can stop paying it once you’ve paid down enough of your loan.

How do I estimate PMI costs?

While lots of factors affect your PMI costs, you can estimate your PMI payments by looking at your credit score and your LTV (loan-to-value, however much you still owe on your mortgage compared with the property’s value).

How can you calculate monthly PMI?

If you plan to make all your PMI payments monthly, find your annual cost (see chart below) and divide by 12 months.

Base LTV
760+
720–759
680–719
620–679
96.5%
0.58%
0.70–0.87%
0.99–1.21%
1.54–1.86%
95%
0.38%
0.53–0.66%
0.78–0.96%
1.28–1.42%
90%
0.28%
0.38–0.46%
0.55–0.65%
0.90–0.94%
85%
0.19%
0.20–0.23%
0.25–0.28%
0.38–0.44%
PMI is based on your overall loan amount.

Say you have a \$200,000 loan. With a 96.5% LTV and a 705 credit score, you can expect to pay between \$1,980 and \$2,420 in PMI per year.

 Note: If you pay PMI using a split-premium plan, you’ll pay part of your premiums at closing and the rest through monthly payments.

Does PMI affect how much house I can afford?

You should plan for PMI costs in your budget, whether you decide to pay at closing, as part of your monthly mortgage payment, or a combination of the two.

If you plan to make a down payment of at least 20%, you won’t need to pay private mortgage insurance, so it won’t affect your overall budget.

How will I pay PMI?

You can pay PMI in one of a few different ways.

Monthly: with a monthly PMI plan, your PMI costs get split into 12 payments each year (one per month). This method lets you pay insurance as part of your monthly mortgage payment, which is convenient and spreads the cost over time.

Up front: you can choose to pay the full PMI cost up front at closing time ― meaning cheaper mortgage payments afterward — so you'll need more cash at closing.

Split-premium: you can divide costs between closing time and monthly payments.

Lender-paid: some lenders will pay your PMI costs in return for a higher interest rate ― meaning you could end up paying more than if you'd gotten PMI yourself.

Do I have to pay PMI?

If you put at least 20% down, you WON'T have to pay private mortgage insurance at all.

If you put less than 20% down, you have to pay PMI only until your loan reaches 80% LTV ― meaning your loan balance is only 80% of the property value.

Your lender might also cover PMI costs for you. Just remember you’ll have a higher interest rate, so you might be better off just paying the PMI for a couple years.

 💡 Quick Tip: Ways to save money when you buyMake a 20% down payment if you can. This means no PMI and lower monthly payments.Find your realtor through a free nationwide service like Clever Real Estate, and get cash back on your home purchase.Look for home buyer grants and other programs that can first-time buyers afford a home.

Do all lenders make you pay PMI?

Most conventional lenders (like your bank) will require you to pay PMI if you put less than 20% down.

Some government loans, like from the VA, don’t require PMI at all. However, FHA loans require an FHA mortgage insurance premium(MIP). Unlike PMI, you have to pay MIP for at least 11 years ― and sometimes for the life of the loan.

Can you get rid of PMI?

Yes, you can get rid of PMI once you’ve paid your loan down to 80% LTV.

That said, you’ll need to call your lender once your loan reaches 80% LTV — they won’t automatically get rid of your PMI payments.

Of course, your agent can help with all your concerns about home buying costs. So don’t be afraid to ask plenty of questions. That’s what they’re there for!