Published July 15, 2025 · 11 min read

PMI Calculator: When Can You Stop Paying PMI?

What Is PMI and Why Do You Pay It?

Private Mortgage Insurance (PMI) is an insurance policy that protects your lender — not you — if you default on your mortgage. It's required on conventional loans when your down payment is less than 20% of the home's purchase price.

Here's the thing that frustrates many homeowners: you're paying for insurance that protects the bank, not yourself. If you stop making payments and the lender forecloses, PMI reimburses them for losses — but you still lose your home and damage your credit. It feels unfair, and in some ways it is. But PMI exists for a practical reason — it enables lenders to offer mortgages to buyers who haven't saved a full 20% down payment. Without PMI, many people would be shut out of homeownership entirely.

According to the CFPB, PMI is one of the most misunderstood costs in the mortgage process. The good news is it's temporary — unlike some other costs, PMI can and will go away once you've built enough equity. Understanding exactly when and how to remove it can save you thousands of dollars.

About 35% of conventional mortgage borrowers pay PMI, according to industry data. If you're one of them, this guide will help you understand exactly what you're paying, why, and how to stop paying it as soon as possible.

How Much Does PMI Cost?

PMI typically costs between 0.3% and 1.5% of the original loan amount per year. The exact rate depends on your credit score, down payment amount, loan type, and the PMI company your lender uses. Here's a detailed breakdown:

On a $340,000 loan, PMI at 0.75% costs $2,550/year or $213/month. At 1.2%, that jumps to $4,080/year or $340/month. Over several years, PMI can add up to $10,000–$25,000+ before you're eligible to remove it.

The cost difference between a 760 credit score and a 660 credit score borrower is dramatic — potentially $200+/month. This is one of the strongest arguments for improving your credit score before applying for a mortgage. Even a 20-point increase could drop your PMI rate significantly.

How to Calculate Your PMI

The calculation is straightforward once you know your rate:

1. Find your PMI rate (ask your lender or use estimates based on credit score from the table above)
2. Multiply your original loan amount by the PMI rate
3. Divide by 12 for your monthly PMI payment

Example 1: $360,000 loan × 0.75% PMI rate = $2,700/year ÷ 12 = $225/month

Example 2: $280,000 loan × 0.5% PMI rate = $1,400/year ÷ 12 = $117/month

Example 3: $420,000 loan × 1.1% PMI rate = $4,620/year ÷ 12 = $385/month

Add this to your principal, interest, taxes, and insurance to get your true monthly housing cost. Many first-time buyers are shocked when they realize PMI can add $150–$400 to their monthly payment on top of everything else. For a detailed breakdown of all payment components, see our mortgage payment calculation guide.

Types of PMI: Monthly, Upfront, and Split

Most borrowers pay monthly PMI (called Borrower-Paid Monthly PMI or BPMI), but there are actually several options:

• Monthly PMI (BPMI): The most common type. Added to your monthly payment and can be canceled once you reach 20% equity. This is usually the best option because it gives you the most control.
• Single-Premium PMI (upfront): You pay the entire PMI cost upfront at closing — typically 1%–3% of the loan amount. On a $350,000 loan, that's $3,500–$10,500 as a lump sum. The advantage is no monthly PMI charge. The downside: if you sell or refinance within a few years, you've wasted that money.
• Lender-Paid PMI (LPMI): The lender pays PMI for you but charges a higher interest rate — typically 0.25%–0.5% higher. On a $350,000 loan, that extra rate costs about $73–$146/month. The catch: you can never remove LPMI without refinancing, since it's baked into your rate. Avoid this option if you plan to stay long-term.
• Split-Premium PMI: A combination of upfront and monthly. You pay a smaller lump sum at closing (0.5%–1% of the loan) to get a lower monthly PMI rate. This can be a good compromise if you want to minimize monthly costs without paying the full upfront amount.

For most borrowers, standard monthly PMI is the best choice because it's cancelable and doesn't require extra cash at closing.

When Can You Remove PMI?

Under the Homeowners Protection Act of 1998, you have two key milestones:

• At 80% LTV (20% equity) — Request removal: Once your loan balance reaches 80% of the original home value, you can request PMI cancellation in writing. Your lender may require a current appraisal and verification that you have a good payment history (no 30-day late payments in the past 12 months and no 60-day late payments in the past 24 months).
• At 78% LTV (22% equity) — Automatic removal: Your lender is legally required to cancel PMI when your balance reaches 78% of the original value, based on the original amortization schedule. You don't need to request this — it happens automatically.
• Midpoint of loan — Final backstop: If you somehow haven't reached 78% LTV by the midpoint of your loan term (year 15 of a 30-year mortgage), PMI must be terminated regardless.

Timeline example: On a $400,000 home with 10% down ($360,000 loan) at 6.5%:

• 80% LTV target: $320,000 balance (need to pay down $40,000 in principal)
• Through regular payments alone, you'll reach 80% LTV in about 7.5 years
• At $225/month PMI for 7.5 years, that's $20,250 in total PMI payments
• If you add $200/month extra to principal: reach 80% in about 5.5 years
• PMI cost at 5.5 years: $14,850 — saving $5,400 in PMI alone

That 2-year acceleration saves about $5,400 in PMI payments plus additional interest savings from the extra payments. It's one of the best returns on investment available to homeowners.

5 Strategies to Eliminate PMI Faster

1. Make extra principal payments: Even $100–$200/month extra can shave years off your PMI. On a $360,000 loan, an extra $200/month reaches 80% LTV about 2 years faster, saving $5,400+ in PMI. See our guide on how extra payments save you thousands.
2. Request a new appraisal: If your home has appreciated significantly due to renovations or a hot market, a new appraisal showing higher value drops your LTV ratio instantly. If you bought at $400,000 with 10% down and your home is now worth $450,000, your LTV is already 80% ($360,000 ÷ $450,000). Note: many lenders require you to have had the mortgage for at least 2 years before accepting appreciation-based PMI removal.
3. Refinance: If your home value has risen enough to give you 20%+ equity, refinancing eliminates PMI on the new loan. Factor in closing costs ($3,000–$8,000) to ensure it makes sense. If PMI is costing you $250/month and closing costs are $5,000, you break even in 20 months.
4. Make a lump-sum payment: Apply a bonus, inheritance, tax refund, or savings directly to your principal. A $10,000 lump sum on a $360,000 loan at year 3 can knock 1–2 years off your PMI removal timeline.
5. Improve and document home value: Strategic renovations — kitchen remodels ($20,000–$40,000 investment can add $30,000–$60,000 in value), bathroom updates, or curb appeal improvements — can boost your appraised value. Keep receipts, before/after photos, and documentation for the appraiser.

PMI vs FHA Mortgage Insurance

FHA loans have their own form of mortgage insurance called MIP (Mortgage Insurance Premium). There's a critical difference that catches many borrowers off guard: FHA MIP cannot be removed on loans made after June 2013 with less than 10% down. You'll pay it for the entire life of the loan unless you refinance into a conventional mortgage.

*FHA loans with 10%+ down: MIP drops off after 11 years.

For a $300,000 FHA loan with 3.5% down, that's $5,250 upfront MIP (added to your loan balance, making it $305,250) plus $137–$188/month in annual MIP for the entire 30 years. The total FHA mortgage insurance cost can exceed $55,000 over the life of the loan.

Compare that to conventional PMI on the same loan: roughly $175/month for about 8 years = $16,800 total. That's a $38,000+ difference. This is why many borrowers start with FHA — because they need the lower credit score requirement or lower down payment — and then refinance to conventional once they have 20% equity and a 620+ credit score.

Is It Worth Waiting for 20% Down?

This is one of the biggest debates in home buying. Let's run the actual numbers on a $400,000 home:

Option A: Buy now with 10% down ($40,000)

• Loan amount: $360,000 at 6.5%
• Monthly P&I: $2,275
• PMI cost: ~$225/month for 7.5 years = $20,250 total
• Start building equity immediately
• Lock in today's home price

Option B: Wait 2 years and save for 20% down ($80,000)

• No PMI ever — saving $20,250
• Need to save an additional $40,000 (roughly $1,670/month for 2 years)
• Home prices may rise 3%–5% per year ($12,000–$20,000 annually)
• Continue paying rent while saving ($1,800/month × 24 months = $43,200)
• If home appreciates 4%/year: now $432,640 instead of $400,000
• 20% down on new price: $86,528 instead of $80,000

The verdict: In most markets, waiting actually costs more. You save $20,250 in PMI but spend $43,200 in rent and face a higher purchase price. The net cost of waiting is often $30,000–$50,000+. The math strongly favors buying sooner with PMI and removing it as quickly as possible through extra payments.

However, waiting makes sense if home prices in your market are flat or declining, if you need time to improve your credit score (which affects both your mortgage rate AND your PMI rate), or if your current rent is very low.

PMI Tax Deductibility

PMI tax deductibility has been an on-again, off-again benefit from Congress. When available, you can deduct PMI premiums as mortgage interest on your tax return if your adjusted gross income is under $100,000 (the deduction phases out between $100,000 and $109,000).

At a 22% tax bracket, deducting $2,700/year in PMI saves you $594 in taxes — effectively reducing your PMI cost from $225/month to about $175/month. Check with a tax professional for the current status, as this deduction has expired and been renewed multiple times.

Even without the deduction, PMI is often worthwhile compared to renting. But when the deduction is available, it makes the math even more favorable for buying with less than 20% down.

Common PMI Mistakes to Avoid

• Not requesting removal at 80% LTV. Your lender is only required to automatically cancel at 78%. If you wait for automatic cancellation instead of requesting at 80%, you pay roughly 6–12 extra months of PMI — that's $1,350–$4,000 wasted.
• Forgetting about home appreciation. Many homeowners reach 20% equity through appreciation but don't realize it. If you bought at $350,000 three years ago and your home is now worth $410,000, you may already qualify for PMI removal with a new appraisal.
• Choosing lender-paid PMI without understanding it. LPMI means a permanently higher rate. On a $350,000 loan, 0.25% higher rate costs an extra $73/month for the entire 30 years — $26,280 total. Monthly PMI of $200/month for 8 years costs $19,200. LPMI often costs more long-term.
• Not shopping PMI rates. Some lenders use different PMI companies with different rates. Ask your lender which PMI provider they use and what your specific rate will be before committing.
• Ignoring PMI when budgeting for a home. Always factor PMI into your affordability calculation. A $2,200 P&I payment becomes $2,425 with PMI — that extra $225 could push you over the 28% housing ratio threshold.

PMI isn't the enemy — it's the cost of getting into homeownership sooner. But the smart strategy is to understand exactly what you're paying, minimize the cost, and eliminate it as quickly as your finances allow. Use a mortgage calculator to model your specific PMI scenario and see exactly when you'll reach that magic 80% LTV threshold.

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