1. What is PMI?

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

2. How PMI is Calculated

The monthly PMI payment is calculated using this formula:

Where:

• \( Loan\ Amount \) — The principal amount of the mortgage
• \( PMI\ Rate \) — The annual PMI rate (as a percentage)
• 12 — Number of months in a year

Explanation: The annual PMI cost is calculated first (loan amount × rate), then divided by 12 to get the monthly payment.

3. Importance of PMI Calculation

Details: Understanding PMI costs helps homebuyers evaluate the true cost of a mortgage with less than 20% down payment and plan their housing budget accordingly.

4. Using the Calculator

Tips: Enter the loan amount in dollars and the PMI rate as a percentage (e.g., 0.5 for 0.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How long do I have to pay PMI?
A: Typically until your loan-to-value ratio reaches 78%, though you can request cancellation at 80% LTV.

Q2: What are typical PMI rates?
A: Rates usually range from 0.3% to 1.5% of the loan amount annually, depending on credit score and LTV ratio.

Q3: Can I avoid PMI?
A: Yes, by making a down payment of 20% or more, using piggyback loans, or opting for lender-paid PMI.

Q4: Is PMI tax deductible?
A: For some borrowers, PMI premiums may be tax deductible if certain income limits are met (consult a tax professional).

Q5: Does PMI protect me as the homeowner?
A: No, PMI only protects the lender. For homeowner protection, you need homeowners insurance.