What Is PMI? Cost, Calculation and Removal

PMI is insurance you pay for that protects someone else. Here's what it costs, when it disappears on its own — and how to make it disappear sooner.

By the CalcNotebook team · Last reviewed: July 2026

How is PMI calculated?

Private mortgage insurance (PMI) is generally required on a conventional US mortgage when the down payment is below 20%. It protects the lender, not the borrower. Estimated annual PMI = loan amount × annual PMI rate; estimated monthly PMI = that annual amount ÷ 12. Your actual rate and cancellation rules depend on the loan and servicer — check your Loan Estimate.

How is PMI calculated?

Annual PMI = loan × rate · Monthly PMI = annual ÷ 12 · Full payment ≈ P&I + taxes + insurance + PMI + HOA

Worked example: loan $320,000, assumed annual PMI rate 0.5% → $1,600 per year, $133.33 per month. That's an illustration, not a lender quote — plug your own numbers into the PMI Calculator to see your monthly amount and the scheduled cancellation milestones.

What PMI actually is

Private mortgage insurance is required on most conventional loans when your down payment is under 20%. The part brochures gloss over: it insures the lender against your default — you pay the premium, they get the protection. It's not evil; it's the price of buying with less cash down. But it deserves to be counted, minimized and removed on schedule.

What it costs

Commonly around 0.3%–1.5% of the loan amount per year, folded into the monthly payment. On a $320,000 loan that's roughly $80–$400 every month — money that builds neither equity nor interest savings. Your rate depends mostly on credit score and down payment size.

Credit scoreTypical annual PMI rate*
760+0.3% – 0.5% of loan
700 – 7590.5% – 0.8%
640 – 6990.8% – 1.2%
Below 6401.2% – 1.5%+

*Indicative ranges; exact pricing varies by insurer, LTV and loan program.

When it ends by itself

  • Automatic termination: when the balance reaches 78% of the home's original value (assuming payments are current) — US federal law (the Homeowners Protection Act).
  • Final stop: the midpoint of the loan term, even if 78% hasn't been reached.

How to remove it years earlier

  1. Request cancellation at 80% LTV — allowed by law, but only on your written request. Mark the date; the lender won't remind you.
  2. Extra principal payments get you to 80% faster — this stacks with the interest savings (our mortgage calculator's payoff mode shows both effects).
  3. Rising home value: if your home appreciated, a new appraisal may already put you at 80% LTV — many lenders accept this after a couple of years of payments. The appraisal costs a few hundred dollars; removing $200/month of PMI pays that back in weeks.
  4. Refinance into a loan at under 80% LTV — worth it only if the rate math works on its own; run the numbers.

Honest comparisons people skip

  • Waiting to save 20% vs buying with PMI now: not automatically better either way — in a rising market, appreciation can outrun the PMI cost; in a flat one, waiting wins. It's a calculation, not a rule.
  • "Lender-paid PMI" hides the premium in a higher rate — permanently. Regular PMI at least dies at 78%; a higher rate lives the full 30 years.
  • FHA loans: their version (MIP) usually cannot be removed with a small down payment — it lasts the life of the loan. Different product, different math.

Sources: Homeowners Protection Act summaries and consumer guides at CFPB.gov. This is general information for US conventional loans, not financial advice — terms vary by lender.

Sources, assumptions and limitations