Mortgage Calculator with PMI

What PMI Is and Why It Exists

Private mortgage insurance is not insurance for you. It protects the lender against part of the loss if you default and the foreclosure sale does not cover the balance. You pay the premium; the lender is the beneficiary.

Lenders require it on most conventional loans when the down payment is below 20%, because a thinner down payment leaves less of a cushion between the loan balance and the home's value. Once your equity crosses the thresholds set by the Homeowners Protection Act, the premium has to come off — which is the detail most borrowers never look at when they are comparing down-payment options.

The trade-off is simple to state and harder to judge: PMI lets you buy now with less cash, at the cost of a monthly premium you would not otherwise pay. The rest of this page puts numbers on both sides.

The Example: $300,000 Loan at 10% Down

A 10% down payment on a $333,333 home means borrowing $300,000. At 6.5% over 30 years the principal-and-interest payment is $1,896. A $150.00 monthly PMI premium — the equivalent of 0.6% a year on the loan — takes the total to $2,476.76 once property tax and insurance are counted.

PMI is 6.1% of that payment — real money, but a smaller share than the interest itself. The more useful question is how long you pay it.

When PMI Ends

On a conventional loan there are three exit ramps, and two of them are automatic:

1. Requested cancellation at 80% loan-to-value. Once your balance is scheduled to fall to 80% of the original property value, you can ask the servicer to drop PMI. In the example above, the balance reaches $266,667 — 80% of $333,333 — in month 95, about 7.9 years in.
2. Automatic termination at 78% loan-to-value. Federal law requires the servicer to end PMI on its own once the balance is scheduled to hit 78% of the original value, provided the loan is current. Here that is $260,000, reached in month 109 — roughly 9.1 years into a 30-year loan.
3. Final termination at the midpoint. Even if the balance has not reached 78%, PMI must end halfway through the amortization schedule — month 180 on a 30-year loan — as long as the loan is current.

At $150.00 a month, the example pays $16,350 in total PMI before automatic termination. That is the true cost of the smaller down payment, and it is the number to compare against the alternative.

What 20% Down Would Cost Instead

Holding the house constant and changing only the down payment is the comparison that matters. Buy the same $333,333 home with 20% down and the loan drops to $266,667, so the principal-and-interest payment falls to $1,686 and the monthly total lands at $2,116.07 — with no PMI at all.

The 20% down payment costs $33,333 more in cash and saves $360.69 a month, plus $42,515 of interest over the life of the loan. Divide one by the other and the extra cash pays for itself in about 92 months — just under eight years — after which the 20% buyer is ahead every single month.

That break-even is the honest way to frame the decision. If you expect to move or refinance well before that point, the smaller down payment can be the cheaper choice despite the premium. If you are staying put, the arithmetic usually favours waiting until you have 20%.

How Lenders Price PMI

Premiums are quoted as a percentage of the original loan amount per year, most often somewhere between 0.5% and 1.5%. Two inputs drive where you land: your credit score and your loan-to-value ratio. A borrower with a high score and 10% down pays far less than one with a thin file and 3% down, even on an identical house.

Other Ways Out of PMI

1. Wait it out and ask. Diary the month your balance is scheduled to cross 80% of the original value and send the request then. Servicers do not always volunteer it.
2. Pay the balance down faster. Because the thresholds are measured against the balance, extra principal payments pull the cancellation date forward. Run your numbers in the extra-payments calculator to see how far.
3. Order a new appraisal. If the market has moved in your favour, many servicers will accept a current appraisal instead of the original value, usually once the loan has seasoned for two years.
4. Refinance. A new loan replaces the old one entirely. It only pays off if the new rate and the closing costs beat what you are giving up — price it in the refinance calculator before you commit.
5. Lender-paid mortgage insurance. Some lenders offer a slightly higher interest rate in place of a separate premium. Compare the two on total cost, not on the monthly payment alone.

Frequently Asked Questions

When does PMI come off my mortgage automatically?

On a conventional loan, federal law requires the servicer to terminate PMI automatically once your balance is scheduled to reach 78% of the original property value, as long as the loan is current. On the example loaded in the tool above — a $300,000 loan on a $333,333 home at 6.5% over 30 years — that happens in month 109, roughly 9.1 years in. You can ask for cancellation earlier, at 80% loan-to-value, which this example reaches in month 95. At $150 a month the example pays $16,350 in total before PMI ends.

Is PMI the same thing as FHA mortgage insurance?

No. PMI is private mortgage insurance on a conventional loan; it can be cancelled and it terminates on its own. FHA loans carry a mortgage insurance premium, or MIP, with different rules — it is charged both upfront and annually, and on most FHA loans it runs for either 11 years or the life of the loan depending on how much you put down, instead of stopping at 78% loan-to-value. If you have an FHA loan, the cancellation rules described on this page do not apply to you.

Can I drop PMI early if my home has gone up in value?

Usually yes, but through a different route. The automatic and requested thresholds in federal law are measured against the original property value, so a rising market does not trigger them by itself. Most servicers will, however, accept a new appraisal showing that you have reached the loan-to-value they require, typically once the loan has seasoned for at least two years. Ask your servicer which threshold it uses and whether it orders the appraisal. The other option is to refinance, which replaces the loan entirely.

How much does PMI usually cost?

PMI is quoted as a percentage of the original loan amount per year, most often somewhere between 0.5% and 1.5%. Your credit score and your loan-to-value ratio set where you land inside that band. On a $300,000 loan the range works out to between $125.00 and $375.00 a month. The example on this page uses $150.00 a month, which is 0.6% a year on the loan.

References

• CFPB — When can I cancel private mortgage insurance (PMI)?: the borrower-requested cancellation, automatic termination, and final termination rules in plain language.
• Consumer Financial Protection Bureau — Owning a Home: the official U.S. guide to shopping for a mortgage and comparing loan offers.
• Federal Housing Finance Agency (FHFA): the U.S. regulator overseeing Fannie Mae and Freddie Mac, whose guidelines set the conventional-loan rules PMI is attached to.

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