How this instrument works
Private mortgage insurance is not insurance for the borrower. It is a policy the lender requires once a conventional loan exceeds 80 percent of the home's value, and it pays the lender — not you — for part of any loss if the loan defaults and a foreclosure sale falls short. PMI exists purely because the down payment landed below that 20 percent line, and it stops being charged once enough equity accumulates.
The formula here is the plainest structure an insurer can charge: an annual rate, quoted as a percent of the loan balance, split into twelve equal installments and folded into the regular mortgage bill. That rate is not fixed by regulation — insurers price it against credit score, the loan-to-value ratio, the loan type, and how much coverage the investor buying the loan requires, so two borrowers on identical loan amounts can see quotes anywhere from roughly 0.3 percent to well over 1.5 percent.
What the sheet cannot show is when the charge stops. Federal law forces automatic termination of conventional PMI once the scheduled balance reaches 78 percent of the home's original value, and lets a borrower request cancellation earlier, at 80 percent, if payments are current. Re-run this calculator with a smaller loan amount to see that falling balance translate directly into a smaller monthly premium — the arithmetic stays identical at every stage; only the input changes.
- Enter the balance PMI is charged against in Loan amount, $ — usually the amount financed at closing, not the home's purchase price.
- Enter the insurer's quoted premium in Annual PMI rate, % — check the Loan Estimate; conventional rates commonly run from about 0.3% to 1.5% or higher.
- Read Monthly PMI payment, $ for the extra charge added on top of principal and interest for as long as PMI applies.
- Lower Loan amount, $ toward the balance you owe today to see what the same quoted rate would cost against your current payoff instead of the original loan.
Worked example — a $300,000 loan at a 0.5% PMI rate
Set Loan amount, $ to 300000 and Annual PMI rate, % to 0.5, a plausible quote for a borrower with strong credit and a down payment just under 20 percent. Multiply first: 300000 × 0.5 ÷ 100 = 1,500, the annual premium; divide by twelve and Monthly PMI payment, $ reads 125.00 — the exact figure a lender would add to that month's principal and interest.
That $125 is a snapshot of one moment in the loan, not a fixed line item for its whole life. Federal law forces automatic termination once the scheduled balance falls to 78 percent of the home's original value, so lowering Loan amount, $ toward that threshold and re-running the same 0.5 percent rate shows the monthly premium shrinking in step with the payoff, right up to the month it disappears.
Questions
Who does PMI actually protect — the borrower or the lender?
The lender. PMI reimburses the lender, not you, for part of any loss if the loan defaults and a foreclosure sale falls short of the balance owed. It exists solely because the loan exceeds 80 percent of the home's value; it builds no equity, refunds nothing at payoff, and covers none of your own losses if you fall behind.
Why do PMI rates vary so much between lenders?
Because the rate is risk-priced, not fixed. Insurers set it against credit score, the loan-to-value ratio, the loan type, and how much coverage the investor buying the loan requires. Two borrowers with identical loan amounts routinely see quoted rates anywhere from about 0.3 percent to well over 1.5 percent a year, and shopping that rate changes this sheet's answer directly.
Does PMI ever cancel automatically?
Yes, on conventional loans. Federal law requires automatic termination once the scheduled balance reaches 78 percent of the home's original value, provided payments are current, and lets a borrower request cancellation earlier, at 80 percent. FHA loans follow separate rules, and on many low-down-payment loans do not cancel the same way at all.
Is this the same calculation as FHA mortgage insurance?
No. This formula matches conventional PMI — an annual rate applied to the loan balance and billed monthly. FHA's mortgage insurance premium uses its own rate schedule, adds an upfront charge at closing on top, and on loans with less than 10 percent down often continues for the full loan term instead of cancelling partway through.
Why use one fixed loan amount instead of a full amortization schedule?
Because PMI is billed against a balance, and which balance depends on the servicer — some price off the original loan amount, others off the scheduled or actual current balance. Enter the original amount for the premium quoted at closing, or the current payoff balance to see what the same rate costs on the loan today.
Does a bigger down payment always lower the monthly figure?
Yes, through two separate channels shown here. A larger down payment produces a smaller Loan amount, $, which shrinks the premium directly, and it typically also lowers the quoted Annual PMI rate, % itself, since insurers price stronger loan-to-value ratios lower — so the combined effect compounds rather than simply adding.
References
- Consumer Financial Protection Bureau — Owning a home
- Federal Reserve — Consumer's guide to mortgage settlement costs
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.