PMI costs between 0.55% and 2.25% of your loan amount each year, depending on your down payment size and credit score
Private mortgage insurance (PMI) is an annual cost you pay when you borrow more than 80% of a home's purchase price. The lender requires it to protect themselves if you stop paying. The amount you owe each month is a percentage of your loan balance — not the home's price — and it shrinks as you pay down the principal.
A borrower with a $300,000 loan and a 1% PMI rate pays roughly $3,000 per year, or about $250 per month. Someone with the same loan but a 1.5% rate pays $4,500 per year, or $375 monthly. The exact figure depends on three things: how much you borrowed, your down payment percentage, and your credit score. Lenders use these factors to calculate risk and set your specific rate within that 0.55% to 2.25% range.
Key Takeaways
- PMI is calculated as a percentage of your loan amount and appears as a monthly payment on your mortgage bill.
- A smaller down payment (5% to 10%) typically costs more in PMI than a down payment of 15% to 20%, because the lender's risk is higher.
- Your credit score affects your PMI rate — borrowers with scores above 740 usually pay less than those with scores below 620.
- PMI stops automatically once your loan balance reaches 80% of the home's original purchase price, though you can request removal earlier if your home has gained value.
How lenders calculate your PMI rate
Lenders use a loan-to-value ratio (LTV) to determine your PMI cost. This is simply your loan amount divided by the home's purchase price. If you put down 10%, your LTV is 90% — you borrowed 90% of the price. If you put down 5%, your LTV is 95%.
The higher your LTV, the higher your PMI rate, because the lender has less cushion if the home loses value or you default. A 95% LTV typically costs 1.5% to 2.25% annually. A 90% LTV might cost 1.0% to 1.75%. A 85% LTV might cost 0.75% to 1.25%. These ranges vary by lender and by credit score, so two borrowers with identical down payments can pay different rates.
Your credit score is the second factor. Lenders view borrowers with higher scores as lower risk. Someone with a 760 credit score might pay 0.80% PMI on a 95% LTV loan, while someone with a 620 score on the same loan might pay 2.0%. The difference is substantial over time.
What PMI actually costs you each month
PMI appears as a separate line item on your monthly mortgage statement, bundled into your total payment. To estimate your cost, multiply your loan amount by your PMI rate and divide by 12.
Example: A $350,000 loan at 1.2% PMI costs $4,200 per year, or $350 per month. A $250,000 loan at 1.5% costs $3,750 per year, or $312.50 monthly. The payment is not fixed — as you pay down your principal, the PMI amount shrinks because it is calculated on the remaining balance, not the original loan.
Some lenders offer upfront PMI, a one-time fee paid at closing instead of monthly payments. This is typically 1% to 3.6% of the loan amount. You can roll it into your loan balance, which means you pay interest on it over 30 years. Others charge monthly PMI only. A few lenders offer a combination — a smaller upfront fee plus lower monthly payments. Ask your lender which option they offer and compare the total cost over time.
When PMI stops
PMI is not permanent. Once your loan balance drops to 80% of the home's original purchase price, the lender must remove it automatically. This happens through regular principal payments over time — typically 8 to 15 years into a 30-year mortgage, depending on your down payment and interest rate.
You can request removal earlier if your home has gained value. If you bought for $300,000 and it is now worth $350,000, your equity has grown even if you have not paid down the loan much. You can order a home appraisal (you pay for this, usually $300 to $500) and ask the lender to remove PMI based on the new value. Some lenders allow this once you reach 75% to 80% LTV; others have stricter rules. Check your loan documents or call your lender to learn their policy.
How down payment size affects your PMI cost
The relationship between down payment and PMI is direct: a smaller down payment means a higher PMI rate and a longer time paying it. Here is how it typically breaks down across different down payment sizes:
| Down Payment | Loan-to-Value | Typical PMI Rate Range | Estimated Monthly PMI on $300,000 Loan |
|---|---|---|---|
| 5% | 95% | 1.5% to 2.25% | $375 to $562 |
| 10% | 90% | 1.0% to 1.75% | $250 to $437 |
| 15% | 85% | 0.75% to 1.25% | $187 to $312 |
| 20% | 80% | No PMI required | $0 |
A 5% down payment on a $300,000 home means you borrow $285,000. At a 1.75% PMI rate, you pay roughly $437 monthly. A 10% down payment means you borrow $270,000, and at 1.25% PMI, you pay roughly $281 monthly. The difference is not just the rate — it is also that your loan balance is smaller, so the percentage applies to less money.
How credit score affects your PMI rate
Lenders price PMI based on default risk, and credit score is their primary measure of that risk. A borrower with a 740+ score has demonstrated consistent payment history and lower debt. A borrower with a 620 score has missed payments, high balances, or other red flags.
On a $300,000 loan at 95% LTV, a borrower with a 760 credit score might pay 1.5% PMI ($375 monthly), while a borrower with a 640 score might pay 2.1% ($525 monthly). Over 10 years, that is a $18,000 difference. This is one reason improving your credit score before applying for a mortgage can save you real money — not just on the interest rate, but on PMI as well.
If your credit score is below 640, you may want to delay your home purchase by 6 to 12 months while you pay down debt and dispute errors on your credit report. The savings in PMI alone can justify the wait.
Frequently Asked Questions
Can I avoid PMI by putting down less than 20%?
No. If you borrow more than 80% of the home's price, PMI is required by law. However, some borrowers use a piggyback loan — a second mortgage for 10% of the price — to avoid PMI on the first loan. This is less common now and usually costs more overall because the second loan carries a higher interest rate. Ask your lender whether this option exists and whether it saves money in your situation.
Does PMI go away if I refinance?
Only if your new loan is for 80% or less of the home's current value. If you refinance into a new 30-year loan at the same LTV, you will still owe PMI. However, if your home has gained value since you bought it, refinancing can sometimes lower your LTV enough to remove PMI. Get a current appraisal and compare the numbers before refinancing.
What if I pay extra toward principal — does PMI go away faster?
Yes. PMI is based on your loan balance, so paying extra principal reduces that balance faster and gets you to 80% LTV sooner. If you pay an extra $200 per month toward principal, you might reach the 80% threshold 2 to 3 years earlier, saving thousands in PMI payments. However, check your loan documents first — some loans have prepayment penalties, though these are rare on conventional mortgages.
Is PMI tax-deductible?
PMI was tax-deductible for some borrowers in past years, but that deduction expired. Currently, PMI is not deductible on your federal tax return. Some states may have different rules, so check with a tax professional if you live outside the United States or have an unusual situation.
How do I know what PMI rate I will actually pay?
Ask your lender for a Loan Estimate — a document they must provide within three business days of your application. It shows your estimated PMI rate, monthly payment, and total cost. The rate on the Loan Estimate is not final until you lock in your interest rate, but it gives you a realistic number to compare across lenders.