PMI Calculator

Whose insurance is it, anyway?

Private mortgage insurance is the only insurance most people ever buy that pays out to somebody else.

You pay the premium every month. If you default and the lender loses money on the foreclosure, the policy pays the lender. It does not pay you, it does not protect your equity, and it does not reduce what you owe. It exists because you put down less than twenty percent, and the lender wanted covering for that.

Which is worth understanding clearly, because it changes how you should think about the number this calculator gives you. It is not protection you are buying. It is a fee for being allowed to buy a house sooner than you otherwise could have, and it has an expiry date that you have legal rights over.

The calculator prices it. The more useful half of this page is about ending it.

The three numbers it gives back

Enter the home price, your down payment and a PMI rate, and you get:

Two of the boxes fill themselves in as you type. The down payment percent appears once you have entered a price, and the annual PMI appears once you have entered a rate. They are there to sanity check what you typed, not to be filled in by hand.

The LTV, loan to value, is the number everything else hangs off. It is the share of the house the lender is financing. Put twenty percent down and your LTV is eighty percent. Put ten percent down and it is ninety.

If you enter a down payment of twenty percent or more, the calculator stops and tells you PMI is not normally required. That is right for a conventional loan at origination, and it is worth knowing that the twenty percent rule and the rules for getting PMI removed later are different thresholds measured at different times. There is a whole section on that below, because the difference is worth money.

One small thing about the premium itself. This calculator holds it fixed, computing it once on the original loan amount. In practice most servicers recalculate it periodically against your current balance, so your actual premium tends to drift down slightly as you pay the loan off.

A four hundred thousand dollar house, worked through

Say the house is 400,000, you are putting down 40,000, and the PMI rate you have been quoted is 0.5 percent.

The annual premium is 0.5 percent of 360,000, which is 1,800, and dividing by twelve gives 150 a month.

A hundred and fifty a month does not sound like the thing that ruins anybody's budget. But this is a cost with a running total, and the running total is the number worth having in your head.

On that loan at 6.5 percent over thirty years, the principal and interest payment is 2,275.44. Following the amortisation through, the balance first reaches eighty percent of the purchase price at payment 95, which is a bit under eight years, and seventy eight percent at payment 109, about nine years.

So the whole PMI bill, if you simply let it run its course, is roughly 16,350.

Now the interesting bit. If you write to your servicer at the eighty percent mark and ask, the bill is about 14,250 instead.

The difference is 2,100, which is fourteen months of premiums you did not have to pay. Not for refinancing, not for paying anything extra. For sending a letter at the right time.

PMI has a legal off-ramp, and most people miss it

In the United States, PMI is not something a lender can keep charging indefinitely. The Homeowners Protection Act of 1998, which people call the PMI Cancellation Act, sets out exactly when it has to stop. It was passed precisely because homeowners were having trouble getting lenders to cancel, and the rules before it varied wildly from lender to lender.

There are three separate exits, and they are not the same thing.

You can ask, at 80 percent

Once your principal balance reaches eighty percent of the original value, you may submit a written request to cancel. The servicer is required to grant it provided you are current on payments, you have a good payment history, the property has not declined in value, and there are no subordinate liens.

Notice the word written, and notice the word request. This one does not happen on its own. Nobody rings you up about it. If you never write, it never happens, and that is where the 2,100 in the example above quietly goes.

It also means paying extra toward principal has a second payoff. It moves your cancellation date forward, sometimes by years.

It must stop automatically, at 78 percent

If you never write, the servicer must terminate PMI on its own once the balance is first scheduled to reach seventy eight percent of the original value, provided you are current. This one runs off the original amortisation schedule rather than your actual balance, so extra payments do not accelerate it.

And it must stop at the halfway point regardless

There is a backstop called final termination. At the midpoint of your loan's original amortisation schedule, fifteen years into a thirty year loan, PMI must come off if you are current, even if the balance has not reached seventy eight percent. That matters most on loans with an interest only period, principal forbearance or a balloon payment, where the balance falls slowly or not at all.

One more thing worth knowing. If PMI ends part way through a period, unearned premiums are supposed to be returned to you. Some states also provide protections beyond the federal Act, so it is worth checking whether yours is one of them.

Original value is not what your house is worth today

This trips up almost everyone, and it is the difference between a rejected request and an accepted one.

The eighty and seventy eight percent thresholds are measured against the original value, which means the lower of the contract sales price or the appraised value at the time you bought. Not what the house is worth now. If you refinanced, it is the appraised value at the time of the refinance.

So if your house has gone up thirty percent since you bought it, your loan to value against today's market has fallen a long way, and none of that counts toward the automatic thresholds. The Act works off what you paid.

Which cuts both ways, and this is the useful part.

Appreciation does not get you the automatic exits, but many loan investors, including Fannie Mae and Freddie Mac, run their own cancellation guidelines that do consider a current appraisal after a certain seasoning period. Those guidelines cannot be less favourable to you than the federal ones, only more. So if your home has appreciated meaningfully, it is worth asking your servicer specifically what their appreciation-based cancellation route is, rather than only citing the Act.

Falling values work against you in the same way. If the property has declined below the original value, the servicer can refuse the eighty percent request until you can show otherwise, usually with an appraisal you pay for.

Not every loan works this way

Everything above applies to conventional loans with borrower-paid PMI. Several common situations sit outside it, and mixing them up is expensive.

FHA loans do not have PMI. They have MIP, a mortgage insurance premium, which is a government programme with its own rules. Depending on when the loan was taken and how much was put down, MIP can run for eleven years or for the entire life of the loan, and the Homeowners Protection Act thresholds do not apply. For many FHA borrowers the only route off MIP is refinancing into a conventional loan.

Lender-paid PMI is not cancellable. If your lender offered a slightly higher interest rate in exchange for no visible PMI line, the cost is baked into the rate for the life of the loan. There is nothing to cancel at eighty percent, because there is no premium being charged separately. Whether that is a good trade depends entirely on how long you keep the loan.

High-risk loans are exempted. The Act carves out loans classified as high risk from the usual cancellation and automatic termination rules. Your servicer is required to tell you at closing whether your loan falls into that category.

None of this exists outside the United States. Other countries have their own arrangements for low deposit lending, and the thresholds and rights on this page do not transfer. The arithmetic in the calculator still works anywhere, the legal section does not.

Where the PMI rate comes from

The calculator asks you for the rate rather than guessing it, because it is not a number anyone can guess reliably.

Your rate is set by the mortgage insurer, and it moves with your credit score, your LTV, the loan type and term, and how the coverage is structured. A borrower with an excellent score at ninety percent LTV and a borrower with a middling score at ninety seven percent LTV are quoted very different numbers for the same product.

So find your actual rate rather than using a typical one. On a US mortgage it will be on your Loan Estimate and your Closing Disclosure, and your loan officer can tell you before either of those arrive. If you have a quoted annual premium in dollars rather than a percentage, divide it by the loan amount and multiply by 100 to get the rate this box wants.

And it is worth asking what the rate would be at a slightly larger down payment. PMI rates tend to step down at LTV bands rather than sliding smoothly, so a few thousand more down can occasionally cross a band and cut the premium by more than it costs you.

Once you have your monthly figure, our payment calculator will give you the principal and interest, which is the other and much larger part of the monthly number you are trying to budget for.

Questions people ask

Why does it refuse to calculate when I enter 20 percent down?

Because a conventional loan at eighty percent LTV or below does not normally carry PMI at all, so there would be nothing to price. If you have been quoted PMI on a twenty percent down payment, ask the lender why, because something unusual is going on.

Does PMI last the whole mortgage?

On a conventional loan with borrower-paid PMI, no. It must terminate automatically at seventy eight percent LTV of the original value, or at the midpoint of the loan term, whichever comes first, provided you are current. On an FHA loan it can last far longer.

My house has gone up in value. Does that get rid of PMI?

Not through the federal thresholds, which use the original value. But investor guidelines from Fannie Mae or Freddie Mac may allow cancellation based on a current appraisal after a seasoning period. Ask your servicer specifically about that route.

Does paying extra help?

It helps with the eighty percent request, since that one looks at your actual balance. It does not accelerate the seventy eight percent automatic termination, which follows the original schedule regardless of what you have paid.

How do I actually request cancellation?

In writing to your servicer, stating that your balance has reached eighty percent of the original value and that you are current on payments. Keep a copy. Be ready for them to ask for an appraisal showing the property has not declined, and to confirm there are no second liens.

Is PMI tax deductible?

It has been at various times and under various income limits, and the rules have changed repeatedly. Check the position for the tax year you are actually in rather than relying on anything written earlier.

Is it worth avoiding PMI entirely by waiting?

Depends on what house prices and rates do while you save, which nobody knows. Work out the total PMI bill using this calculator, the way the worked example does, and weigh it against what the delay costs you. It is a real trade rather than an obvious one.

References

A note on the sources. Everything on this page about when PMI can be cancelled and when it must terminate comes from the Homeowners Protection Act of 1998, codified at 12 U.S.C. § 4901 and following, and from the Consumer Financial Protection Bureau's guidance and examination procedures for that Act. Those are the documents to quote to a servicer if a request is refused, and the CFPB page below is written for borrowers rather than for lawyers. Nothing here is legal advice, and PMI rules outside the United States are entirely different.

1. Consumer Financial Protection Bureau, When can I remove private mortgage insurance (PMI) from my loan?, on borrower-requested cancellation at 80 percent, automatic termination at 78 percent, final termination at the midpoint of the loan term, and the meaning of original value. https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/
2. Consumer Financial Protection Bureau, Homeowners Protection Act (HPA or PMI Cancellation Act) examination procedures, on the statutory framework, disclosure requirements, high-risk loan exemptions and the return of unearned premiums. https://www.consumerfinance.gov/compliance/supervision-examinations/homeowners-protection-act-hpa-or-pmi-cancellation-act-examination-procedures/
3. Consumer Financial Protection Bureau, CFPB Consumer Laws and Regulations: Homeowners Protection Act, examination manual, citing 12 U.S.C. 4903 on the 78 percent automatic termination trigger. https://files.consumerfinance.gov/f/documents/102012_cfpb_homeowners-protection-act-hpa-pmi-cancellation-act_procedures.pdf
4. National Credit Union Administration, Homeowners Protection Act (PMI Cancellation Act), federal consumer financial protection guide, on the notice and disclosure duties owed to borrowers. https://ncua.gov/regulation-supervision/manuals-guides/federal-consumer-financial-protection-guide/compliance-management/lending-regulations/homeowners-protection-act-pmi-cancellation-act