1. What is PMI?

Private Mortgage Insurance (PMI) is a type of insurance that protects lenders against losses if a borrower defaults on a mortgage loan. It's typically required when the down payment is less than 20% of the home's purchase price.

2. How Does the Calculator Work?

The calculator uses the PMI equation:

Where:

• \( PV \) — Principal value of the loan (USD)
• \( Rate \) — Annual PMI rate (decimal)

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

3. Importance of PMI Calculation

Details: Calculating PMI helps borrowers understand the true cost of their mortgage when making a down payment of less than 20%. It's important for budgeting and comparing loan options.

4. Using the Calculator

Tips: Enter the loan principal 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 is the PMI rate determined?
A: The rate depends on factors like loan-to-value ratio, credit score, loan type, and the insurer's policies. Rates typically range from 0.3% to 1.5% annually.

Q2: How long do I have to pay PMI?
A: For conventional loans, PMI can typically be removed once you reach 20% equity in your home, either through payments or appreciation.

Q3: Are there alternatives to PMI?
A: Yes, options include lender-paid MI, piggyback loans (80-10-10 structure), or making a 20% down payment to avoid PMI altogether.

Q4: Is PMI tax deductible?
A: Tax laws change frequently. As of recent years, PMI deductions have been available for some taxpayers under certain conditions. Consult a tax professional.

Q5: Does PMI protect the homeowner?
A: No, PMI only protects the lender. Homeowners need separate homeowners insurance to protect their property.