How to Calculate Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) or Lenders mortgage insurance (LMI) is only issued with conventional loans. It is required when you purchase a home with less than a 20% down payment. It’s basically an insurance policy that is payable to the lender in the chance that the borrower defaults on the loan. The amount of PMI varies based on factors including the length of the loan term, frequency of the payments, loan to value amount (LTV amount).

There are ways to avoid PMI, the most obvious is to pay 20% on the loan. The second method is to do an 80/15/5 or an 80/10/10 or 80/20 loan, essentially paying the 20% with a partial down payment and a home equity loan, or HELOC. The final way is to pay the PMI up front, many times lenders will even let you finance this amount back into the loan this will also save you more money because this amount will be tax deductible unlike PMI payed monthly.

Here is a simple application that will let you calculate an estimated PMI charge.