How PMI is calculated

PMI is normally expressed as an annual percentage of your original loan balance and converted into a monthly charge included in your mortgage payment. Insurers set the rate based on key risk factors:

  • Loan-to-value (LTV) at origination — lower down payments → higher PMI.
  • Credit score — higher scores usually mean lower rates.
  • Loan type and loan term — conforming conventional loans differ from jumbo loan pricing.
  • Borrower-paid vs lender-paid vs single-upfront premium structures.

Typical rate range: about 0.3% to 1.5% annually of the original loan amount for conventional PMI, though your lender or insurer quote may differ. For example: if the home price is $300,000 and you make a 5% down payment, your loan = $285,000. At a 0.5% PMI rate:

  • Annual PMI = $285,000 × 0.005 = $1,425
  • Monthly PMI = $1,425 ÷ 12 ≈ $118.75

When and how PMI can be removed

Two federal benchmarks govern conventional PMI removal under the Homeowners Protection Act (HPA):

  • Borrower-requested cancellation: you can ask your loan servicer to cancel PMI once your LTV reaches 80% based on the original value (from payments and/or an appraisal). The servicer may require:
  • a written request, no late payments in the prior 12 months, and
  • proof of property value (a lender-ordered appraisal or homeowner-provided appraisal) if the servicer requires it.
  • Automatic termination: the servicer must stop PMI when the balance reaches 78% of the original value (assuming on-time payments).

Important notes:

  • LTV measurements usually start with the original purchase price or appraised value at closing. A new appraisal can establish higher value (and speed removal) but is typically at the borrower’s expense.
  • If you refinance to eliminate PMI, the new loan’s LTV and program rules determine whether PMI is required.
  • FHA loans use Mortgage Insurance Premiums (MIP), which follow different rules (for most FHA loans issued after 2013, MIP may stay for the life of the loan unless you put down ≥10%). See HUD/FHA guidance for details.

Practical ways to reach 80% LTV faster

  • Pay extra principal: even modest extra payments accelerate equity accumulation and reduce PMI sooner.
  • Get a new appraisal if your area has appreciated — a documented increase in home value can lower current LTV.
  • Refinance when it makes sense: if rates are favorable and you have ≥20% equity, refinance into a loan without PMI.
  • Consider lender options at purchase: piggyback loans, lender credits, or single-premium PMI—each has tradeoffs. Compare total costs over your expected ownership period.

What to expect when you request cancellation

Contact your loan servicer and ask their PMI-cancellation requirements. Typical servicer steps:

  1. Confirm current balance and payment history.
  2. Calculate current LTV using the original value (or accept a recent appraisal if allowed).
  3. If you meet the 80% threshold and other criteria, the servicer will cancel future PMI charges; if you meet 78%, PMI should terminate automatically.

In my practice I’ve seen homeowners accelerate PMI removal by combining timely extra principal payments with a market-value appraisal — but the appraisal costs must be weighed against the monthly PMI savings.

Common mistakes and cautions

  • Don’t assume PMI will drop off automatically at 80% — you usually must request cancellation. Automatic termination occurs at 78%.
  • Confirm whether your PMI is borrower-paid, lender-paid (LPMI), or single-premium; LPMI lowers monthly payment but cannot be canceled without refinancing.
  • Watch for servicer requirements: some lenders require 2 years seasoning or a borrower-paid appraisal before approving cancellation.

Links to related guides

Authoritative sources & next steps

This content is educational and not personalized financial advice. For decisions about PMI removal, appraisals, or refinancing, consult your loan servicer or a qualified mortgage professional who can review your specific loan documents and local market conditions.