Mortgage Costs
If you're buying a home with less than 20% down, your lender will almost certainly require PMI. It adds a meaningful amount to your monthly payment — and unlike your mortgage interest, it builds you zero equity. Here's everything you need to know.
Quick answer: PMI (Private Mortgage Insurance) protects the lender — not you — if you default. It's required when your down payment is less than 20% and typically costs 0.5–1.5% of your loan amount per year.
When you put less than 20% down, the lender is taking on more risk. If you stop making payments and the home goes into foreclosure, the lender may not recover the full loan amount from the sale. PMI is an insurance policy that covers the lender's loss in that scenario.
It's important to understand that PMI protects the lender, not you. You pay the premiums, but the lender is the beneficiary. That's what makes it frustrating — you're paying for someone else's protection.
| Loan Amount | PMI Rate | Monthly Cost | Annual Cost |
|---|---|---|---|
| $250,000 | 0.8% | $167 | $2,000 |
| $320,000 | 0.8% | $213 | $2,560 |
| $400,000 | 0.8% | $267 | $3,200 |
| $500,000 | 0.8% | $333 | $4,000 |
Your actual PMI rate depends on your credit score, loan-to-value ratio, and lender. Better credit = lower PMI rate. Our calculator automatically calculates your exact PMI cost and shows you the month it drops off.
The good news is PMI isn't forever. Under the federal Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — as long as you're current on payments.
You can also request cancellation once you reach 80% LTV — you don't have to wait for the automatic cancellation at 78%. Contact your lender, request a cancellation, and they may require an appraisal to confirm your home's value hasn't dropped.
PMI also goes away when you refinance, as long as the new loan is below 80% LTV.
1. Put 20% down. The cleanest solution. If you have the savings, a 20% down payment eliminates PMI completely and typically gets you a lower interest rate too.
2. Piggyback loan (80-10-10). Take out a first mortgage for 80%, a second mortgage for 10%, and put 10% down. No PMI on the first mortgage since it's at 80% LTV. The second mortgage has a higher rate but you avoid PMI. Works best in lower rate environments.
3. Lender-paid PMI. Some lenders offer to cover your PMI in exchange for a slightly higher interest rate. You pay a bit more each month but it's built into the rate rather than a separate charge. Makes sense if you plan to sell or refinance within a few years before the higher rate costs more than the PMI would have.
Our calculator automatically detects when PMI applies, shows your monthly PMI cost, and tells you exactly when it drops off — down to the month.
Calculate My PMI →This article is for educational purposes only and does not constitute financial or mortgage advice. Consult a licensed mortgage professional for guidance specific to your situation.