What Is PMI? Cost, How It's Calculated & How to Remove It

If you're buying a home with less than 20% down, you'll almost certainly pay Private Mortgage Insurance (PMI). It's one of those costs that catches first-time buyers off guard. But honestly, it's not as bad as it sounds — and in many cases, it's worth it to get into a home sooner rather than later.

What is PMI and Why Does It Exist?

PMI is an insurance policy that protects your lender if you default on your loan. It doesn't protect you — it protects the bank. Here's why it exists: when you put down less than 20%, the lender takes on more risk. If home prices dip and you stop paying, the lender might not recover the full loan amount when they sell the property.

Look at it this way. With a 5% down payment on a $400,000 home, you're borrowing $380,000. If the market drops 10%, the house is worth $360,000 — less than what you owe. PMI gives the lender a safety net in that scenario.

How Much Does PMI Cost?

PMI typically costs between 0.3% and 1.5% of your loan amount per year, paid monthly. On a $350,000 loan, that's roughly $88 to $438 per month. Most borrowers fall in the 0.5% to 1% range.

Several factors affect your PMI rate: your credit score, loan-to-value ratio (LTV), loan type, and even the specific PMI provider. A borrower with a 760 credit score and 10% down might pay 0.3%, while someone with a 620 score and 5% down could pay 1.2% or more.

Here's a quick breakdown of estimated monthly PMI costs:

• $300,000 loan, good credit, 10% down: ~$125/month
• $400,000 loan, good credit, 5% down: ~$250/month
• $500,000 loan, fair credit, 10% down: ~$375/month

Our mortgage calculator with PMI can give you a precise estimate based on your specific numbers. For a step-by-step formula walk-through, see how PMI is calculated.

How Is PMI Calculated? (Formula + Example)

Lenders price PMI as an annual rate on the loan amount, then divide by 12 for the monthly charge:

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

Example: $300,000 purchase with 10% down → $270,000 loan. If the annual PMI rate is 0.6%, annual PMI is $270,000 × 0.006 = $1,620, or $135/month. Your actual rate depends on credit score, LTV, and the insurer — use the calculator above with your down payment to see PMI in the total payment.

PMI is based on the loan balance, not the home price directly. As you pay down principal, the monthly PMI amount can fall slightly if your lender recalculates, but the bigger drop usually happens when you cancel PMI at 80% LTV.

PMI Rates by Credit Score and Down Payment

There is no single national PMI rate card published for consumers. Insurers (and lender pricing engines) adjust for LTV and credit score. As a planning range, many conventional borrowers with 10% down and strong credit land near 0.3%–0.7% annually; thinner credit or 3%–5% down often runs 0.8%–1.5%. The Consumer Financial Protection Bureau explains when PMI applies on conventional loans in its PMI overview.

*Illustrative planning ranges, not a quote. Your Loan Estimate is the source of truth.

How to Avoid PMI

The simplest way? Put down 20% or more. But for many buyers, that's just not realistic in today's market. Here are your alternatives:

Piggyback loans (80/10/10 or 80/15/5): You take out a first mortgage for 80% of the home price, a second mortgage (home equity line) for 10% or 15%, and put down the remaining 5-10%. The first mortgage stays at 80% LTV, so no PMI is required.

VA loans: If you're a veteran or active military, VA loans don't require PMI at all — even with 0% down. Instead, most borrowers pay a one-time VA funding fee (or qualify for an exemption). Read VA funding fee vs PMI for how that compares with conventional insurance, then use our VA loan calculator for payment math.

Lender-paid PMI (LPMI): The lender pays the PMI premium in exchange for a slightly higher interest rate — typically 0.25% to 0.5% more. You pay more interest over the life of the loan, but your monthly payment might be lower.

FHA loans: FHA doesn't use PMI — they use MIP (Mortgage Insurance Premiums), which works differently. You'll pay an upfront premium (1.75% of the loan) plus an annual premium for the life of the loan in most cases. Try our FHA loan calculator for specifics.

How to Remove PMI

The good news: PMI isn't forever. Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance drops to 78% of the original home value. You can also request cancellation at 80% LTV, though you might need to pay for an appraisal.

If your home appreciates, you can build equity faster. Let's say you bought for $400,000 with 5% down ($380,000 loan). If the home value rises to $475,000, your LTV drops to 80% even without paying down much principal. A new appraisal could get PMI removed.

Most homeowners can remove PMI within 2-7 years through a combination of principal payments and home appreciation. In hot markets, it happens even faster.

Is PMI Worth It?

In my view, yes — if it gets you into a home that fits your budget. Here's the math: paying $200/month in PMI to buy a home that appreciates 3-5% annually often beats waiting years to save 20% while home prices keep climbing. Just make sure the total monthly payment (including PMI) fits comfortably in your budget.