1. What Is PMI?

PMI (Private Mortgage Insurance) is a type of insurance that lenders require when homebuyers make a down payment of less than 20% of the home's purchase price. It protects the lender if the borrower defaults on the loan.

2. How PMI Is Calculated

The calculator uses the PMI formula:

Where:

• \( Outstanding\ Balance \) — Current loan balance in USD
• \( Annual\ Rate \) — Annual PMI rate as a decimal (e.g., 0.005 for 0.5%)

Explanation: The equation calculates the monthly PMI payment by multiplying the loan balance by the annual rate, then dividing by 12 months.

3. Importance of PMI Calculation

Details: Understanding PMI costs helps borrowers evaluate the true cost of a mortgage with less than 20% down payment and plan for when they can request PMI cancellation.

4. Using the Calculator

Tips: Enter the current loan balance in USD and the annual PMI rate as a decimal (e.g., 0.005 for 0.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How long do I have to pay PMI?
A: Typically until your loan-to-value ratio reaches 78%, though you can request cancellation at 80% in most cases.

Q2: What are typical PMI rates?
A: Rates usually range from 0.3% to 1.5% of the loan amount annually, depending on credit score and down payment.

Q3: Can I avoid PMI?
A: Yes, by making a 20% down payment, using piggyback loans, or through lender-paid PMI options.

Q4: Is PMI tax deductible?
A: For some borrowers, PMI may be tax deductible if certain income requirements are met (consult a tax professional).

Q5: Does PMI protect me as the borrower?
A: No, PMI only protects the lender. You'll still be responsible for the full loan amount if you default.