How Is PMI Calculated? Formula, LTV, and Worked Numbers

Lenders do not pick a PMI payment out of a hat. How is PMI calculated is a short formula sitting on top of your loan amount, your loan-to-value ratio, and a rate the insurer assigns to your credit and occupancy. This page does the arithmetic. The companion explainer — what PMI is — covers why the policy exists and how to avoid it. Use the mortgage calculator when you want the premium inside a full PITI sketch. We are not a lender. Confirm every number on a Loan Estimate.

Official background: the CFPB on private mortgage insurance and the federal cancellation framework in the Homeowners Protection Act. Wikipedia’s PMI overview is a secondary summary.

The monthly formula

For borrower-paid monthly PMI the sketch is:

Monthly PMI ≈ (loan amount × annual PMI rate) ÷ 12

The annual rate is a decimal (0.006 is 0.60%). It is not the note rate on the mortgage. It comes from the PMI certificate: credit-score band, LTV band, single-family vs condo, owner-occupied vs investment, and sometimes a first-time-buyer flag. We will not publish a fake 2026 rate card. Your quote is the card.

Worked illustration — not a quote. Loan amount $360,000. Annual PMI rate 0.60%.

• Annual premium = 360,000 × 0.006 = $2,160
• Monthly PMI = 2,160 ÷ 12 = $180

Same loan at 0.35% (stronger credit, lower LTV) is about $105 a month. At 1.10% (thin credit, 5% down) it is about $330. That spread is why two neighbors with the same purchase price do not pay the same PMI.

LTV is the lever

Loan-to-value is the loan divided by the lesser of purchase price or appraised value. A $400,000 price, $40,000 down, $360,000 loan is 90% LTV. Cross a band (95, 90, 85, 80) and the PMI rate usually steps down. Crossing 80% is also the conversation about cancellation — see below.

If the appraisal comes in light, LTV rises even if you did not change the down payment. PMI is priced off that worse LTV. Re-run the formula after the appraisal, not after the accepted offer.

Amortization shrinks the loan slowly at first. A amortization schedule shows when you might reach 80% of original value by principal alone. Home-price gains can get you there sooner if you pay for a new appraisal and the lender accepts it.

Three numbers people mix up

Borrower-paid monthly PMI is the formula above — a line on the monthly statement.

Lender-paid PMI (LPMI) is usually a higher note rate instead of a monthly line. There is still a premium; you are paying it as interest. You cannot “cancel LPMI” the way you cancel borrower-paid PMI. Compare APR and cash-to-close, not just the PMI box.

FHA MIP is not PMI. FHA uses an upfront premium plus an annual premium collected monthly. On many low-down FHA loans the annual MIP lasts for the life of the loan. Do not drop an FHA MIP into this conventional formula. Use the FHA calculator and FHA vs conventional.

VA loans do not use conventional PMI. They may include a funding fee. That is a different article.

When the premium can stop

On many owner-occupied conventional loans, the Homeowners Protection Act lets you request cancellation at 80% LTV of the original value (you may need an appraisal and a clean payment history). Servicers must automatically terminate PMI at 78% of original value when you are current, for loans that the Act covers. Read your note. Investment properties and some lender-paid structures play by other rules.

Automatic termination is based on original value, not a new Zillow number. If the house doubled, you still need the servicer’s process — request, appraisal, or a refinance that drops LTV under 80% without PMI.

A second worked case

Purchase $520,000. Down 5% ($26,000). Loan $494,000. LTV 95%. Suppose the certificate rates 0.85%.

• Annual = 494,000 × 0.0085 = $4,199
• Monthly PMI ≈ $350

Same house, 10% down, loan $468,000, rate 0.55%:

• Annual = 468,000 × 0.0055 = $2,574
• Monthly PMI ≈ $215

The extra cash at closing bought a lower LTV band and a lower rate. That is the real comparison — not “PMI bad / 20% good” as a slogan. Put both PITI totals in the calculator with taxes and insurance held constant.

What this page will not do

We will not invent current MGIC / Arch / Essent rate tables. We will not tell you your credit score. We will not restack What is PMI (definition, avoidance, piggybacks). This URL is the arithmetic and the LTV bands. Educational illustrations only — not advice for your file.