Private mortgage insurance is calculated as a percentage of your original loan amount, typically ranging from 0.46% to 1.50% per year. The exact rate depends on your credit score, down payment size, and loan-to-value ratio. Your lender or the mortgage insurance company assigns a specific rate based on these risk factors, and that rate is then applied to your loan balance to determine what you pay each month.
The Four Factors That Set Your Rate
PMI isn’t a flat fee. The rate you’re charged is based on how risky the loan looks to the insurer. Four variables drive that calculation.
Credit score has the biggest impact. Borrowers with scores in the 620 to 639 range pay an average annual premium of 1.50% of the loan amount. That drops to 1.23% for scores between 660 and 679, and falls further to 0.98% for scores between 680 and 699. On a $300,000 loan, the difference between a 620 credit score and a 690 credit score could mean paying $4,500 a year versus $2,940, a gap of more than $1,500 annually.
Down payment size directly affects cost. PMI is required when you put down less than 20% on a conventional mortgage. Someone putting down 5% will generally pay a higher PMI rate than someone putting down 15%, because the lender has more exposure if the loan goes bad. Every percentage point closer to 20% reduces your rate.
Loan-to-value ratio (the percentage of the home’s value you’re borrowing) works hand in hand with your down payment. A 95% LTV ratio signals more risk than an 85% LTV ratio, and the PMI rate reflects that. Lenders prefer an LTV of 80% or lower, which is the threshold where PMI disappears entirely.
Loan amount matters because PMI is a percentage of your mortgage balance. A 1% PMI rate on a $200,000 loan costs $2,000 a year. That same 1% rate on a $400,000 loan costs $4,000. The percentage might not change, but the dollar amount scales with the size of the mortgage.
How the Monthly Payment Is Calculated
Once the insurer assigns your annual PMI rate, the math is straightforward. The rate is multiplied by your loan amount to get the annual premium, then divided by 12 to produce your monthly payment.
Here’s a concrete example. Say you’re buying a $350,000 home with 10% down. Your loan amount is $315,000. Your credit score is 670, putting your PMI rate around 1.23%. Multiply $315,000 by 0.0123 to get an annual premium of $3,874.50. Divide by 12, and your monthly PMI payment comes to about $323.
That $323 gets added on top of your principal, interest, property taxes, and homeowners insurance. It’s typically collected as part of your regular monthly mortgage payment and held in escrow by your servicer, though some lenders bill it separately.
Different Ways to Pay PMI
Monthly premiums are the most common structure, but they’re not the only option. You may have a choice when you close on the loan.
Monthly premiums spread the cost over each payment. This is the default for most borrowers and keeps your upfront costs lower. The advantage is that once you reach enough equity, you can cancel PMI and stop paying entirely.
Single premium (upfront) lets you pay the entire PMI cost as a lump sum at closing. This eliminates the monthly charge and can make sense if you plan to stay in the home for many years. The downside is that the payment is nonrefundable. If you refinance or sell the home after a few years, you won’t get that money back.
Lender-paid PMI shifts the cost to your lender, who covers the insurance in exchange for charging you a slightly higher interest rate. You won’t see a separate PMI line item on your statement, but you’ll pay more in interest over the life of the loan. Unlike borrower-paid PMI, you can’t cancel a higher interest rate once you hit 20% equity. The only way to shed that cost is to refinance.
Some lenders also offer split premiums, where you pay a smaller lump sum at closing and a reduced monthly premium. Each structure has trade-offs depending on how long you expect to keep the mortgage.
When PMI Goes Away
PMI is not permanent. The Homeowners Protection Act sets clear rules for when it must be removed from conventional loans.
You can request cancellation once your loan balance drops to 80% of the home’s original purchase price, as long as you’re current on your payments. This requires contacting your servicer and, in many cases, paying for a new appraisal to confirm the home’s value.
If you don’t request cancellation, your servicer is required to automatically terminate PMI when your LTV reaches 78% of the original purchase price based on the amortization schedule. There’s also a backstop: PMI must be canceled no later than the midpoint of your loan term. For a 30-year mortgage, that’s 15 years in.
You can reach 20% equity faster than the original schedule by making extra principal payments or by benefiting from home price appreciation. If your home’s value has risen significantly, you may be able to request an early cancellation by getting a new appraisal that shows your current LTV is at or below 80%. Lender policies on appraisal-based cancellation vary, so check with your servicer on the specific requirements.
How to Estimate Your PMI Before You Apply
You won’t know your exact PMI rate until a lender pulls your credit and runs the numbers, but you can get a reasonable estimate. Start with the loan amount (home price minus your expected down payment). Then use these benchmarks based on credit score ranges:
- 620 to 639: approximately 1.50% of the loan amount per year
- 640 to 659: approximately 1.31%
- 660 to 679: approximately 1.23%
- 680 to 699: approximately 0.98%
Higher credit scores will generally fall below these ranges, and borrowers with scores above 760 often pay rates closer to 0.46% to 0.65%. A high debt-to-income ratio can push your rate toward the higher end of your credit tier as well.
To put these numbers in perspective, on a $250,000 loan at 0.98%, your monthly PMI would be about $204. At 1.50%, it jumps to $312. That $108 monthly difference adds up to nearly $1,300 a year. If improving your credit score by even 20 to 40 points before applying could move you into a lower tier, the savings over several years of PMI payments can be substantial.