How to Calculate Pmi

PMI Calculator

PMI Calculation Results:

Loan Amount:

Loan-to-Value (LTV) Ratio:

Annual PMI Payment:

Monthly PMI Payment:

Understanding Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is a type of insurance policy that protects mortgage lenders from the risk of default by borrowers. It's typically required when a homebuyer makes a down payment of less than 20% of the home's purchase price. While it protects the lender, the cost of PMI is borne by the borrower, usually as an additional monthly payment added to their mortgage bill.

Why is PMI Required?

Lenders consider loans with a low down payment (meaning a high Loan-to-Value, or LTV, ratio) to be riskier. If a borrower defaults on their mortgage and the home's value has declined, the lender might not recover the full loan amount through foreclosure. PMI mitigates this risk for the lender, making it possible for more people to purchase homes with smaller upfront costs.

How is PMI Calculated?

PMI is generally calculated as an annual percentage of the original loan amount. This annual percentage (the PMI rate) can vary significantly based on several factors, including:

• Loan-to-Value (LTV) Ratio: The higher your LTV (i.e., the smaller your down payment), the higher your PMI rate might be.
• Credit Score: Borrowers with higher credit scores typically qualify for lower PMI rates.
• Loan Type: Different loan programs or lenders may have varying PMI structures.
• Loan Term: Shorter loan terms might sometimes have slightly different PMI rates.

Once the annual PMI rate is determined, the calculation is straightforward:

Annual PMI = Loan Amount × (PMI Rate / 100)

Monthly PMI = Annual PMI / 12

How to Use the PMI Calculator

Our PMI Calculator helps you estimate your potential Private Mortgage Insurance costs. Simply input the following details:

1. Home Purchase Price ($): The total price you are paying for the home.
2. Down Payment Amount ($): The amount of money you are putting down upfront.
3. Annual PMI Rate (%): This is the annual percentage rate your lender quotes for PMI. If you don't have an exact figure, a common range is 0.3% to 1.5% of the original loan amount per year. You can use an average like 0.5% for an initial estimate.

The calculator will then provide you with the estimated Loan Amount, Loan-to-Value (LTV) ratio, and your Annual and Monthly PMI payments.

Example Calculation:

Let's say you're buying a home for $300,000 and making a $30,000 down payment. Your lender quotes an annual PMI rate of 0.5%.

• Home Purchase Price: $300,000
• Down Payment: $30,000
• Loan Amount: $300,000 – $30,000 = $270,000
• LTV Ratio: ($270,000 / $300,000) * 100 = 90%
• Annual PMI: $270,000 * (0.5 / 100) = $1,350
• Monthly PMI: $1,350 / 12 = $112.50

In this scenario, your estimated monthly PMI payment would be $112.50.

Avoiding and Removing PMI

The most common way to avoid PMI is to make a down payment of 20% or more of the home's purchase price. If you already have PMI, there are ways to remove it:

• Automatic Termination: Lenders are generally required to automatically cancel PMI once your loan-to-value (LTV) ratio reaches 78% of the original home value, based on the original amortization schedule.
• Borrower-Requested Cancellation: You can request to cancel PMI once your LTV reaches 80% of the original home value, provided you have a good payment history and the property hasn't decreased in value. This often requires an appraisal.
• Refinancing: If your home's value has increased significantly, or you've paid down a substantial portion of your loan, refinancing your mortgage might allow you to reach an LTV of 80% or less, thereby eliminating PMI.

Understanding PMI is crucial for any homebuyer with a down payment less than 20%. Use this calculator to get a clear estimate of this additional cost and plan your homeownership journey effectively.