The formula for your monthly PMI
Your monthly PMI payment is calculated by multiplying your loan amount by your annual PMI rate, then dividing by 12. The formula is: (Loan Amount × Annual PMI Rate) ÷ 12 = Monthly PMI.
The annual PMI rate varies based on three things: how much you put down, your credit score, and your loan type. A borrower with a 5% down payment and a 680 credit score will pay a higher rate than someone with 10% down and a 740 score. Rates typically range from 0.3% to 1.5% of your loan amount per year, but your lender will give you the exact rate before you lock in your mortgage.
To find your rate, check your Loan Estimate form — the document your lender sends within three business days of your application. It lists the annual PMI rate in the "Costs at Closing" section. If you do not have it yet, call your lender and ask for the PMI rate on your specific loan.
Key Takeaways
- Monthly PMI equals your loan amount times your annual PMI rate, divided by 12.
- Your annual PMI rate depends on your down payment percentage, credit score, and loan type, and will be shown on your Loan Estimate.
- A $300,000 loan with a 0.8% annual rate costs about $200 per month in PMI.
- PMI typically drops off when you reach 20% equity in your home, either through payments or home value increase.
Working through a real example
Say you are borrowing $300,000 with a 7% down payment. Your lender quotes you an annual PMI rate of 0.8%. Multiply $300,000 by 0.008, which gives you $2,400 per year. Divide by 12 and you get $200 per month.
That $200 gets added to your mortgage payment each month. It does not go toward your principal or interest — it is insurance that protects the lender if you default. Once you have paid down your loan to 80% of the original home value, or your home has appreciated enough that your loan is now 80% of current value, you can request PMI removal.
The timing matters. If your home value rises quickly, you may reach 20% equity faster than your payment schedule suggests. An appraisal can prove this to your lender and let you drop PMI sooner.
How down payment size changes your rate
Lenders charge higher PMI rates for smaller down payments because the risk is higher. A borrower putting down 3% has less skin in the game than one putting down 10%, so the insurance costs more.
Here is how the same $300,000 loan looks at different down payment levels, assuming a 700 credit score and a conventional 30-year mortgage:
| Down Payment | Loan Amount | Typical Annual PMI Rate | Monthly PMI (approximate) |
|---|---|---|---|
| 3% | $291,000 | 1.2% | $291 |
| 5% | $285,000 | 0.9% | $214 |
| 10% | $270,000 | 0.6% | $135 |
| 15% | $255,000 | 0.4% | $85 |
Notice that a larger down payment does two things: it lowers the loan amount itself, and it lowers the rate the lender charges for PMI. Both effects reduce your monthly payment.
Credit score impact on PMI rates
Your credit score is the second major factor. A score of 620 to 639 will get you a higher PMI rate than a score of 740 to 759, even with the same down payment. The difference can be 0.2% to 0.4% of your loan amount per year.
On a $300,000 loan, that 0.2% difference means $50 more per month. Over 10 years, that is $6,000 in extra insurance costs. If you are a few months away from improving your credit score, waiting might save you real money. Check your credit report for errors before you apply, and dispute anything that is wrong.
When PMI drops off automatically
Federal law requires lenders to cancel PMI automatically when your loan balance reaches 78% of the original home purchase price. This happens through your regular mortgage payments over time.
The timeline depends on your interest rate and loan term. On a 30-year mortgage at 6.5% interest, you might reach 78% loan-to-value in about 11 to 12 years. On a 15-year mortgage, it happens faster — around 8 to 9 years.
You can also request PMI removal earlier if your home has appreciated. Once your equity reaches 20% (meaning your loan is 80% of current value), you can ask your lender to order an appraisal. If the appraisal supports it, PMI comes off immediately, even if your payment schedule says otherwise.
PMI on FHA loans works differently
FHA loans use mortgage insurance premiums (MIP) instead of PMI, and the math is different. FHA charges an upfront premium of 1.75% of your loan amount, paid at closing or rolled into your loan. Then you pay an annual premium of 0.55% to 0.8% of your loan amount, split into 12 monthly payments.
On an FHA loan of $300,000, the upfront premium is $5,250. The annual premium at 0.65% is $1,950 per year, or about $163 per month. Unlike conventional PMI, FHA mortgage insurance does not automatically drop off at 20% equity — it stays for the life of the loan if you put down less than 10%.
Frequently Asked Questions
Can I pay PMI in a lump sum instead of monthly?
Some lenders allow you to pay PMI upfront at closing, which is called a single premium. This is usually more expensive overall than paying monthly, but it removes the monthly payment from your budget. Ask your lender whether this option is available and what the total cost would be compared to monthly payments.
Does PMI ever go down if my home value drops?
No. PMI is based on your original loan-to-value ratio, not current home value. If your home loses value, your PMI payment stays the same. It only drops when you reach 20% equity through loan paydown or when you refinance into a new loan with a lower balance.
What if I refinance — do I have to pay PMI again?
Only if your new loan amount is more than 80% of your home's current value. If you refinance after building equity, you may be able to avoid PMI on the new loan. Your lender will calculate this based on a current appraisal.
How do I know if my PMI rate is competitive?
Get Loan Estimates from at least three lenders and compare the PMI rates they quote for the same loan amount and down payment. Rates vary between lenders, and shopping around can save you hundreds of dollars per year. The Loan Estimate shows the annual rate clearly, so the math is straightforward to compare.
Can I remove PMI early if I pay extra toward principal?
Yes, if your extra payments bring your loan balance to 80% of the original purchase price. However, you still need to request removal — it does not happen automatically until you reach 78%. Contact your lender with proof of your current balance and ask them to cancel PMI once you hit the 20% equity mark.