Put 10 percent down on a $400,000 house and your lender will add a line item to your monthly bill that protects them, not you: private mortgage insurance. At a typical annual rate of 0.5 percent on your $360,000 loan, that is $150 a month — $1,800 a year — for coverage that pays the lender if you default and pays you nothing at all. Over the life of a 30-year loan it can easily exceed $16,000. PMI is the tax America levies on homebuyers who cannot scrape together a 20 percent down payment, and understanding exactly how it works is the fastest way to pay less of it.

The 20 percent threshold is the whole game. Conventional lenders — meaning loans bought by Fannie Mae and Freddie Mac, which back the majority of US mortgages — treat a 20 percent down payment as the dividing line between a "safe" borrower and a risky one. Below that line, they require PMI as compensation for the risk. At exactly 20 percent down or more, no PMI is required at all, which is why the difference between a 19 percent and a 20 percent down payment can be worth $150 a month for the better part of a decade. On a $400,000 purchase, that single percentage point of down payment — $4,000 — saves roughly $16,000 in PMI premiums. Few financial moves offer a 4-to-1 return that quickly.

How much you pay depends on your loan-to-value ratio, your credit score, and the insurer's rate card. Annual PMI rates typically run from 0.3 percent to 1.5 percent of the loan amount, divided into twelve monthly installments. A borrower with a 760 credit score putting 10 percent down might pay 0.3 percent annually, while a 660-score borrower with 5 percent down could pay over 1 percent. On a $360,000 loan that is the difference between $90 and $300 a month. This is one more reason the months before a home purchase are the time to guard your credit score jealously: every hard inquiry and every maxed-out card can show up directly in your PMI bill.

The rate card: what your credit score costs you

PMI pricing lives on insurer rate cards with bands, and your credit score decides your band. Take the $360,000 loan from the example above. A borrower with a 760 score putting 10 percent down might pay around 0.30 percent annually — about $90 a month. At a 700 score the same loan might price near 0.58 percent — about $174 a month. At 660, it can exceed 1.10 percent — roughly $330 a month. Same house, same down payment, a $240 monthly swing driven entirely by credit. Down payment bands matter too: moving from 5 percent down to 10 percent, or 10 to 15, can drop you into a cheaper tier — which is why running this calculator at several down payment levels is worth two minutes. A few thousand extra dollars down occasionally saves tens of thousands in premiums.

Here is a worked example using this calculator's defaults. Home price $400,000, down payment $40,000 (10 percent), annual PMI rate 0.5 percent, mortgage rate 6.5 percent, 30-year term. The loan amount is $360,000. Monthly PMI comes to $360,000 × 0.005 / 12 = $150. Your principal-and-interest payment is about $2,275, so PMI adds roughly 6.6 percent on top. Now the good news: PMI is not forever. Federal law — the Homeowners Protection Act of 1998 — requires lenders to automatically terminate PMI when your loan balance falls to 78 percent of the original home value through scheduled payments. On this loan, 78 percent of $400,000 is $312,000, and normal amortization brings the $360,000 balance down to that level after about 109 months, a little over nine years. Total PMI paid: roughly $16,350. You can also request cancellation earlier, once the balance hits 80 percent of original value (about $320,000 here, reached around month 96), provided you ask in writing, are current on payments, and the lender is satisfied the home has not declined in value — they may order a new appraisal at your expense.

The $2,000 letter: ask at 80, do not wait for 78

The Homeowners Protection Act gives you three dates, and the first one only works if you act. You may request cancellation when your balance hits 80 percent of the original value — around payment 96, or year eight, on the example loan. The lender must cancel automatically at 78 percent — around payment 109. And PMI ends at the loan's midpoint (year 15 on a 30-year loan) no matter what, as long as you are current. The gap between asking and waiting is real money: roughly 13 months of $150 PMI, or about $2,000, for the price of a written request. The conditions on the 80 percent date: you must ask in writing, be current on payments, have a solid payment history, and satisfy the lender that the home has not lost value — expect to pay $300 to $600 for the appraisal. Mark the month on your calendar the day you close; lenders have no incentive to remind you, and every extra month of unnecessary PMI is money you never get back.

Appreciation and extra payments: the accelerators

The automatic 78 percent rule is based on the original purchase price, but borrower-requested cancellation can use the home's current value. If your $400,000 home appraises at $450,000, your $360,000 balance is suddenly 80 percent loan-to-value — removable years early. Most servicers require at least two years of seasoning for value-based cancellation, and you will pay for the appraisal. Extra principal payments are the other accelerator, and unlike appreciation, you control them: an extra $200 a month on the example loan pulls the 80 percent date forward by almost three years, saving roughly $4,800 in PMI on top of the interest savings. Just make sure extra payments are applied to principal, and confirm there is no prepayment penalty — rare on US mortgages originated after 2014, but worth checking.

Do not confuse conventional PMI with FHA mortgage insurance — they are different products with different rules, and the FHA version is far stickier. FHA loans, backed by the Federal Housing Administration and popular with first-time buyers for their 3.5 percent minimum down payment, charge an upfront mortgage insurance premium (1.75 percent of the loan, usually rolled into the balance) plus an annual premium of 0.55 percent for most borrowers after the 2023 cut. The catch: if you put down less than 10 percent on an FHA loan, the annual premium lasts for the entire life of the loan — it never drops off automatically. The only escape is refinancing into a conventional loan once you have 20 percent equity. VA loans for eligible veterans and USDA loans for rural buyers have their own structures: VA charges a one-time funding fee but no monthly insurance at all, which is one reason the VA loan is often called the best mortgage deal in America. USDA loans charge a small annual guarantee fee, currently 0.35 percent, that runs for the life of the loan.

Lender-paid PMI and the single premium: the alternatives

Borrower-paid monthly PMI is not the only structure. With lender-paid mortgage insurance, the lender absorbs the premium and charges you a higher interest rate instead — typically 0.25 to 0.5 points more. On the $360,000 example, a quarter-point rate bump costs about $60 a month versus $150 in monthly PMI — but unlike PMI, the higher rate never drops off, so lender-paid insurance wins only if you will sell or refinance within a few years. There is a tax angle too: the extra mortgage interest is deductible for itemizers, while PMI premiums generally are not under current law. Single-premium PMI flips the timing the other way: pay 1.5 to 3 percent of the loan as a lump sum at closing (sometimes via seller concession) and never pay monthly. It wins if you stay long enough for the monthly savings to exceed the upfront cost — and loses badly if you sell or refinance in two years, because it is not refundable. An 80-10-10 piggyback — an 80 percent first mortgage plus a 10 percent second loan — avoids insurance entirely but replaces it with a second payment, usually at a higher rate. Run the structures through this calculator before choosing.

If you are buying soon, you have several legitimate ways to avoid PMI entirely. The straightforward one is 20 percent down — on top of skipping PMI, it usually earns you a slightly better interest rate. The classic workaround is an 80-10-10 "piggyback": an 80 percent first mortgage, a 10 percent second mortgage or home equity line, and 10 percent down, so no single loan exceeds 80 percent loan-to-value. Lender-paid mortgage insurance is another option: the lender covers the PMI cost in exchange for a slightly higher interest rate, which can make sense if you itemize deductions since mortgage interest (but not PMI, under current law) is deductible. Finally, some credit unions and community banks offer portfolio loans with no PMI requirement at all, keeping the loan on their own books instead of selling it to Fannie Mae.

A final practical note: PMI shows up in your monthly escrow payment, and servicers are required to give you an initial PMI disclosure at closing plus an annual reminder of your cancellation rights. Keep those notices. When your balance approaches 80 percent of the original value — track it with this calculator — call your servicer, request cancellation in writing, and follow up until you see the charge disappear. Lenders have no incentive to remind you, and every extra month of unnecessary PMI is $150 you will never get back.

One more angle most buyers miss: you can shop for PMI itself. The rate is not set by your lender — it is set by private mortgage insurers like MGIC, Radian, Essent, and Enact, and lenders choose among them. When comparing loan estimates from multiple lenders, look past the interest rate to the monthly mortgage insurance line; two lenders quoting the same 6.5 percent rate can show PMI figures $40 apart because they use different insurers or different coverage levels. Ask each lender which insurer they use and whether a higher coverage tier (which costs you more monthly but protects them more) is really necessary for your profile. On a related note, borrowers with excellent credit sometimes find that a slightly larger down payment — say 12 percent instead of 10 — drops them into a meaningfully cheaper PMI tier, because insurer rate cards price in bands. Running this calculator at 5, 10, 12, and 15 percent down takes two minutes and can reveal a sweet spot where a few thousand extra dollars down saves tens of thousands in premiums.

Tax treatment deserves a clear-eyed paragraph because it changed. For years, PMI premiums were deductible as mortgage interest for itemizers, subject to income phaseouts. That deduction expired and, under current federal law, PMI is generally not deductible — unlike the mortgage interest itself, which remains deductible on up to $750,000 of acquisition debt for itemizers. This asymmetry is another quiet argument for lender-paid mortgage insurance in some cases: the slightly higher interest rate that replaces PMI is deductible, while the PMI it replaces is not. Tax law changes often, so confirm the current treatment with a tax professional before letting deductibility drive the decision, but factor it into your comparison when the numbers are close.

The hidden cost: PMI eats your buying power

One more way PMI costs you that has nothing to do with the monthly bill: it counts against you when you qualify. Lenders apply the 28/36 debt-to-income rules to your full housing payment — principal, interest, taxes, insurance, and PMI. That $150 monthly PMI premium occupies $150 of your allowed housing budget, which at 6.5 percent for 30 years translates to roughly $24,000 of lost borrowing power. In other words, the PMI does not just cost $150 a month; it can force you into a smaller house than your income would otherwise support. This is the quietest argument for stretching to 20 percent down, taking the piggyback, or buying slightly under your max approval — every dollar of PMI is a dollar that cannot go toward the house itself.

With the pre-filled defaults — Home Price $400,000, Down Payment $40,000, Annual PMI Rate 0.5%, Mortgage Interest Rate 6.5%, Loan Term 30 years — the PMI Calculator returns Down Payment 10.00%, Loan Amount $360,000.00, PMI Required (1 = Yes, 0 = No) 1, Monthly PMI Cost $150.00, Months Until PMI Drops Off 109, Years Until PMI Drops Off 9.1, Total PMI Paid $16,304.34. Change any input and those results update instantly, so you can see exactly how each number you enter moves the answer.