PMI Calculator: How Much Does Mortgage Insurance Cost?
PMI Calculator: How Much Does Mortgage Insurance Cost?
Mortgage insurance is an added expense for many homebuyers. Understanding the requirements and costs of mortgage insurance can help you navigate the home-buying process with confidence. In this guide, we'll delve into the costs associated with mortgage insurance, the factors that influence those costs, and how to potentially avoid them.
Average cost of mortgage insurance
Mortgage insurance costs vary depending on the loan type, loan amount, and your credit score. Private mortgage insurance or PMI costs range from 0.5% to 1.5% of the original loan amount per year on average. For FHA loans, you'll pay an upfront mortgage insurance premium (MIP) and an annual MIP.
| Loan amount | Average PMI cost per year | Average PMI cost per month* |
|---|---|---|
| $100,000 | $500 – $1,500 | $40 – $130 |
| $200,000 | $1,000 – $3,000 | $80 – $250 |
| $250,000 | $1,300 – $3,800 | $110 – $320 |
| $300,000 | $1,500 – $4,500 | $130 – $380 |
| $350,000 | $1,800 – $5,300 | $150 – $440 |
| $400,000 | $2,000 – $6,000 | $170 – $500 |
| $450,000 | $2,300 – $6,800 | $190 – $570 |
| $500,000 | $2,500 – $7,500 | $210 – $630 |
*Based on 12 monthly payments.
Use the convenient mortgage calculator in our related guide to determine how much house you can afford.
What is mortgage insurance?
Mortgage insurance is a policy that protects the lender if the borrower defaults on their mortgage loan. It lowers the risk to the lender of providing a mortgage to a borrower who may not be able to put down a substantial down payment. This insurance enables people to achieve homeownership sooner than they might otherwise.
There are different types of mortgage insurance, each with its own set of rules and costs. The two main types are private mortgage insurance (PMI) for conventional loans and mortgage insurance premium (MIP) for FHA loans.
What is PMI?
PMI stands for Private Mortgage Insurance. Conventional lenders typically require PMI when a borrower makes a down payment of less than 20% of the home's purchase price. PMI is a cost borrowers pay to be able to buy a home without saving as much for a down payment.
There are several ways to pay private mortgage insurance costs, each with its own advantages and disadvantages. The table below highlights the key differences:
| Type | Upfront cost | Monthly cost | Interest rate | Description |
|---|---|---|---|---|
| Borrower-paid (BPMI) |
Low | Moderate | Standard | You pay PMI monthly as part of your mortgage payment. (most common type) |
| Lender-paid (LPMI) |
None | None | Higher | The lender absorbs the PMI cost but charges a higher interest rate on the loan. |
| Single premium | High | None | Standard | You pay the entire PMI amount up front as a lump sum at closing. |
| Split premium | Moderate | Lower | Standard | You pay part of the PMI initially, with the remainder spread across monthly payments. |
What is MIP?
FHA loans, backed by the Federal Housing Administration, require their own type of mortgage insurance, known as mortgage insurance premium or MIP. MIP involves two separate fees: an upfront payment and an annual payment.
Upfront Mortgage Insurance Premium (UFMIP) costs 1.75% of the loan amount. Some people pay this premium along with their house closing costs, and others roll it into the loan balance.
Annual Mortgage Insurance Premium (MIP) costs 0.15% to 0.75% of the loan amount per year, paid in 12 monthly installments with the mortgage payment.
If you put at least 10% down, the MIP requirement stops after 11 years. Otherwise, MIP payments continue for the life of the loan.
Mortgage loan insurance cost factors
Several factors affect the cost of mortgage insurance, including:
Property value: The higher the property value, the higher your loan amount and therefore your PMI cost.
Down payment amount: A larger down payment may result in a reduced PMI rate if other factors allow for it as well.
Loan amount: PMI cost is directly related to the size of your mortgage.
Type of loan: Conventional, FHA, VA, and USDA loans have different mortgage insurance requirements and costs.
Loan term: Longer loan terms may lower your monthly mortgage payment but result in higher overall PMI payments.
Your loan-to-value (LTV) ratio: A higher LTV (meaning a smaller down payment) usually results in a higher PMI rate.
Your debt-to-income (DTI) ratio: A higher DTI, which indicates you have more debt relative to your income, can increase your PMI cost.
Your credit score: A lower credit score usually means a higher PMI rate, as it indicates a higher risk to the lender.
How to calculate PMI
Mortgage insurance is calculated based on a percentage of the mortgage loan amount. It is not based on the home's appraised value or purchase price. Calculating PMI involves a few steps. Here's a general formula:
Determine your loan amount.
Find your PMI rate (usually between 0.5% and 1.5%).
Multiply your loan amount by the PMI rate.
Divide the result by 12 to get your estimated monthly PMI payment.
Remember, this is just an estimate; the actual PMI cost may vary depending on your individual finances. Additionally, annual mortgage insurance is recalculated each year, so you'll pay less PMI each year as you pay down the loan.
How to avoid PMI
All the costs of owning a home can add up quickly and start to feel overwhelming. If you want to avoid paying PMI, here are some strategies:
Save for a 20% down payment: This is the most straightforward way to avoid PMI on a conventional loan.
Consider a piggyback loan: Also known as an 80/10/10 loan, this involves taking out a second mortgage to cover the portion of the down payment that exceeds 80% LTV.
Negotiate with the seller: In some cases, you may be able to negotiate with the seller to cover some of the closing costs, effectively increasing your down payment.
Get a VA Loan: If you're a military veteran, active-duty service member, or surviving spouse, you might qualify for a VA loan, which is guaranteed by the Department of Veteran Affairs (VA) and doesn't require a down payment or PMI.
Buy a cheaper house: Spending less on the home can reduce your down payment costs, helping you avoid PMI. Exploring your home-buying options, including deciding whether it is cheaper to build or buy a home in your area, may help you reduce your home purchase price.
How to lower your monthly PMI cost
If you can’t avoid PMI all together, you can potentially lower your costs by:
Improving your credit score: A higher credit score may result in a lower PMI rate.
Increasing your down payment: A larger down payment lowers the loan-to-value ratio, which can lead to a lower PMI rate.
Reducing your debt-to-income ratio: A lower debt-to-income ratio can also help you qualify for a lower PMI rate.
FAQs about mortgage insurance
Is mortgage insurance required?
Whether mortgage insurance is required depends on the type of loan and the size of your down payment. Here's a breakdown:
Conventional Loans require PMI if your down payment is less than 20%.
FHA Loans require mortgage insurance regardless of your down payment amount.
VA Loans do not require mortgage insurance.
USDA Loans require mortgage insurance in the form of an upfront guarantee fee and an annual fee.
Is mortgage insurance the same as homeowners insurance?
No, mortgage insurance protects the mortgage lender in the event you don't pay back your loan. Homeowners insurance protects your home from damage against certain covered events.
Is mortgage insurance tax deductible?
For many years, PMI was tax deductible, but this deduction expired. As of 2025, the tax deduction for PMI has not been renewed. Always consult a tax professional for the most up-to-date information.
What does mortgage insurance cover?
Mortgage insurance protects the lender, not the borrower. If the borrower defaults on the loan, mortgage insurance compensates the lender for the loss.
When does PMI go away?
If you're current on your mortgage payments, borrower-paid PMI automatically terminates once you reach 78% loan-to-value (LTV) based on the original property value. You can also request PMI removal when you reach 80% LTV.
What is mortgage protection insurance?
Mortgage protection insurance (MPI) is a type of optional life insurance designed to pay off your mortgage if you die or become disabled. While PMI protects the lender if you default, MPI protects you and your family by paying off the mortgage if you can no longer do so.
What to look for in a mortgage professional
Choosing the right mortgage professional is crucial for securing the best loan terms and understanding all the costs involved, including mortgage insurance. Here's what to look for:
Experience: Look for a mortgage lender with a proven track record.
Transparency: The lender should be clear about all fees and costs.
Excellent communication: They should be responsive and explain things clearly.
Positive reviews: Check reviews on HomeGuide and Google, and ask for referrals.
Knowledge: They should be knowledgeable about various loan products and mortgage insurance options.
Support: Ask if they offer any ongoing support services.
Questions to ask a mortgage lender
To ensure you're well-prepared to discuss your mortgage options with a lender, ask these key questions:
What are the different types of mortgage insurance available to me?
How much will my monthly PMI payment be?
When can I expect to have PMI removed from my loan?
What is the interest rate with and without lender-paid PMI?
Are there any other fees associated with the loan?
What is the process for refinancing my mortgage in the future?
Can you provide a detailed loan estimate outlining all costs?
What are the pros and cons of paying a single-premium PMI versus a monthly PMI?
How does my credit score affect my PMI rate?
What down payment options do I have, and how will they impact my PMI?
Using our proprietary cost database, in-depth research, and collaboration with industry experts, we deliver accurate, up-to-date pricing and insights you can trust, every time.