What Is PMI? How It's Calculated, What It Costs, and How to Remove It

Buying a house in the US is expensive, and saving a massive 20% down payment is out of reach for many first-time buyers. The good news? You can buy a house with as little as 3% or 5% down. Depending on the loan structure and down payment, PMI — Private Mortgage Insurance may be required on a conventional mortgage.

This guide explains what PMI is, how a monthly PMI payment can be estimated once an annual premium rate is known, what affects PMI pricing, how cancellation works, and how PMI differs from FHA mortgage insurance. The examples below are illustrations, not lender or insurer rate quotes.

What Is PMI? (Private Mortgage Insurance)

PMI stands for Private Mortgage Insurance. When you put down less than 20% on a conventional loan, the bank sees you as a higher risk. If you default on the loan and they have to foreclose on the house, the lender wants a financial safety net.

PMI primarily protects the lender against part of the loss if a borrower defaults. The borrower generally pays the premium, and PMI can make a conventional loan possible with less than a 20% down payment.

PMI is provided by private insurance companies — not the government. The most common PMI providers include MGIC, Radian, Essent, National MI, and Arch MI. Your lender selects the insurer, but the cost is passed directly to you as a monthly fee added to your mortgage payment.

How Is PMI Calculated?

The insurer or lender determines the annual PMI rate from the loan's risk characteristics. Once that annual rate is known, the monthly premium can be estimated from the loan amount.

Let's walk through a real example. Say you buy a $350,000 home and put 10% down ($35,000). Your loan amount is $315,000. If your credit score is 720, your PMI rate might be approximately 0.58% per year.

• Annual PMI cost: $315,000 × 0.0058 = $1,827
• Monthly PMI payment: $1,827 ÷ 12 = $152.25/month

If that same buyer had a credit score of 660 instead, the PMI rate jumps to around 1.10%:

• Annual PMI cost: $315,000 × 0.011 = $3,465
• Monthly PMI payment: $3,465 ÷ 12 = $288.75/month

That is a $136.50/month difference — or $1,638 per year — entirely because of a lower credit score. This is why improving your credit before applying for a mortgage can save you thousands.

Factors That Determine Your PMI Rate

Factor	Impact on PMI Rate
Credit profile	Credit characteristics can affect the premium quoted by a private mortgage insurer.
Down Payment %	Larger down payment = lower rate. 15% down is cheaper than 5% down.
Loan-to-Value (LTV)	Lower LTV = lower risk = lower PMI. 85% LTV is cheaper than 95% LTV.
Loan characteristics	Loan term, amortization type, occupancy, and other risk characteristics can affect pricing.
Coverage and insurer	The required coverage level and the insurer's pricing also affect the premium.

How Much Is PMI Per Month?

PMI is not a flat national rate. The Consumer Financial Protection Bureau notes that PMI rates vary with factors including down payment and credit score. Your actual premium comes from the mortgage-insurance arrangement for your loan, so the most reliable number is the one shown in your lender's disclosures or Loan Estimate.

For illustration, if you buy a $400,000 home and put down 5% ($20,000), the loan amount is $380,000. At an assumed annual PMI rate of 1.00%, the arithmetic would be $3,800 per year, or about $316.67 per month. That 1.00% rate is an example only, not a quote.

Illustrative PMI Cost on a $300,000 Loan

Assumed Annual PMI Rate	Annual Cost	Monthly PMI Payment
0.50%	$1,500	$125.00
0.75%	$2,250	$187.50
1.00%	$3,000	$250.00
1.25%	$3,750	$312.50

These are mathematical examples to show how the formula works. They are not PMI quotes and are not tied to a specific credit-score band.

PMI Calculator — Estimate Your Cost

Stop guessing and see exactly how PMI changes your monthly mortgage payment. Our free mortgage calculator automatically factors in PMI when your down payment is below 20%. Simply enter your home price, adjust the down payment slider, and watch the PMI line item appear in your payment breakdown.

You can also use our Extra Payments Calculator to see how making additional principal payments can help you reach 80% LTV faster and eliminate PMI years ahead of schedule.

How to Remove PMI Early

Nobody wants to pay PMI longer than necessary. Here are five common paths that may help end borrower-paid PMI, depending on the loan and servicer rules.

1. Request Cancellation at 80% LTV

For many mortgages covered by the Homeowners Protection Act, you can ask the servicer to cancel PMI on the date the principal balance is scheduled to reach 80% of the home's original value, or earlier if extra principal payments bring the balance to that level. CFPB guidance says the request generally must be in writing, the loan must be current with a good payment history, there must be no disqualifying junior lien, and the servicer may require evidence that the property value has not declined.

2. Wait for Automatic Cancellation at 78% LTV

For many mortgages covered by the Homeowners Protection Act, automatic PMI termination generally occurs on the scheduled date the principal balance reaches 78% of the home's original value, provided the borrower is current. Borrower-requested cancellation can be available earlier at 80% of original value when the applicable conditions are met.

3. Leverage Home Appreciation (Get a New Appraisal)

Some investors and servicers allow borrower-requested PMI cancellation based on the property's current value, but those rules differ from the federal original-value cancellation framework. Confirm the investor or servicer standard before ordering a valuation.

For example, Fannie Mae's current servicing guide generally requires, for a one-unit principal residence or second home, a current-value LTV of 75% or less when the mortgage has two to five years of seasoning, or 80% or less when seasoning is greater than five years. Fannie Mae may waive the minimum two-year seasoning requirement for qualifying borrower-made improvements that increased the property value. Other eligibility and payment-history requirements still apply.

4. Make Extra Principal Payments

Extra principal payments reduce the outstanding balance faster and may move the loan toward the 80% original-value cancellation threshold sooner. The timing depends on the starting balance, interest rate, amortization schedule, and the amount of extra principal. Use our Extra Payments Calculator to model the effect.

5. Refinance Into a New Loan

Refinancing can replace the existing mortgage with a new loan that may not require PMI if the new loan meets the applicable LTV and underwriting requirements. Compare the new rate, closing costs, monthly savings, and break-even period before deciding. Try our Refinance Calculator to model the trade-off.

PMI vs MIP — What's the Difference?

These two types of mortgage insurance sound similar but work very differently. PMI applies to conventional loans, while MIP (Mortgage Insurance Premium) applies to FHA loans backed by the Federal Housing Administration.

Key takeaway: Whether conventional financing with PMI or FHA financing is less expensive depends on your credit profile, down payment, loan size, expected holding period, and the applicable insurance premiums. Compare actual Loan Estimates rather than assuming one program is always cheaper.

Illustrative PMI Cost Examples

PMI pricing is not set by state and there is no single universal PMI rate. For illustration, a $300,000 loan would cost about $125 per month at a 0.50% annual PMI rate, $187.50 at 0.75%, and $250 at 1.00%. Your actual premium is determined by the insurer/lender and your loan characteristics.

Frequently Asked Questions About PMI