The basic formula for mortgage insurance
Mortgage insurance is calculated as a percentage of your loan amount, multiplied by a factor that depends on your down payment size and loan type. The formula is straightforward: take your loan amount, multiply it by the annual insurance rate (expressed as a decimal), then divide by 12 to get your monthly payment.
For example, if you borrowed $300,000 and your annual mortgage insurance rate is 0.55%, the math works like this: $300,000 × 0.0055 ÷ 12 = $137.50 per month. That $137.50 gets added to your regular mortgage payment each month until you reach a certain equity threshold or your loan reaches a certain age.
The annual rate itself is not something you choose — it's set by the lender based on how much you put down. A 5% down payment triggers a higher rate than a 15% down payment, because the lender's risk is higher when you have less skin in the game.
Key Takeaways
- Your mortgage insurance rate depends on your down payment percentage, not on your credit score or income, and ranges from roughly 0.3% to 1.86% annually depending on how much you borrowed relative to the home's value.
- The monthly payment is your loan amount times the annual rate, divided by 12 — you can calculate this yourself once you know the rate your lender quoted.
- Mortgage insurance drops off automatically when you reach 20% equity in the home, or you can request removal once you hit that mark, though timing varies by loan type.
- Your lender must disclose the exact insurance rate and monthly cost before you close, so you should see these numbers in your Loan Estimate document.
Where to find your mortgage insurance rate
Your lender provides the mortgage insurance rate in the Loan Estimate, a document you receive within three business days of submitting your application. Look for the line item labeled "Mortgage Insurance" or "PMI" (private mortgage insurance) in the "Estimated Monthly Payment" section. The document shows both the monthly dollar amount and, usually, the annual percentage rate.
If you do not see a clear rate listed, call your loan officer and ask for the annual mortgage insurance percentage. They should give you a single number — something like "0.75% annually" — that you can plug into the formula yourself to verify the monthly payment they quoted.
The rate is locked in at the time you lock your interest rate, so it will not change between the Loan Estimate and closing. If you shop around with multiple lenders, compare the insurance rates they quote alongside the interest rate, because a lower interest rate sometimes comes with a higher insurance cost.
How down payment size changes your insurance cost
The smaller your down payment, the higher your mortgage insurance rate. This is because the lender's risk increases when you have less equity in the home from day one. A borrower with 3% down is statistically more likely to default than one with 10% down, so the insurance rate reflects that difference.
Here is how the brackets typically work: a 3% down payment might carry a 1.86% annual rate, while a 10% down payment might be 0.55%, and a 15% down payment might be 0.35%. These numbers vary by lender and by the size of your loan, but the direction is always the same — more down payment means lower insurance.
This is why some borrowers choose to put down more than the minimum required. If you can afford 10% instead of 5%, the reduction in your monthly insurance payment might offset the cost of saving that extra money, depending on how long you plan to stay in the home.
The difference between FHA and conventional mortgage insurance
FHA loans (backed by the Federal Housing Administration) calculate insurance differently than conventional loans. FHA charges an upfront mortgage insurance premium (UFMIP) of 1.75% of your loan amount, paid at closing, plus an annual premium that ranges from 0.45% to 0.80% depending on your down payment and loan term.
Conventional loans use only an annual premium with no upfront cost. The tradeoff is that FHA insurance is harder to remove — it stays on for the life of the loan if you put down less than 10%, whereas conventional insurance drops off at 20% equity. If you plan to stay in the home long-term, FHA's permanent insurance can cost more overall.
When comparing an FHA offer to a conventional offer, add the FHA upfront cost to the total of the monthly premiums over several years to see which loan type costs less in your situation. Your lender can run this comparison for you if you ask.
When mortgage insurance stops
For conventional loans, mortgage insurance automatically cancels when you reach 20% equity in the home, calculated from your original purchase price. If you bought a $400,000 home with 5% down ($20,000), you need to build $80,000 in equity before the insurance drops off. As you make payments and the home appreciates, you move toward that threshold.
You do not have to wait for automatic cancellation. Once you reach 20% equity, you can request removal in writing. Your lender may require an appraisal to confirm the home's current value, which costs $300 to $500 out of pocket. If the home has appreciated significantly, an appraisal might show you have already crossed the 20% threshold even if your payment history suggests otherwise.
FHA insurance works differently. If you put down 10% or more, it cancels at 20% equity like conventional insurance. If you put down less than 10%, it stays for the life of the loan — there is no removal option. This is a major cost difference over 30 years, so it matters when you are deciding between loan types.
Calculating insurance for different loan amounts and down payments
The easiest way to see how insurance changes with your situation is to work through a few examples. Assume a lender quotes these annual rates: 3% down = 1.86%, 5% down = 1.10%, 10% down = 0.55%, 15% down = 0.35%.
| Loan Amount | Down Payment % | Annual Rate | Monthly Insurance |
|---|---|---|---|
| $300,000 | 3% | 1.86% | $465 |
| $300,000 | 5% | 1.10% | $275 |
| $300,000 | 10% | 0.55% | $138 |
| $400,000 | 5% | 1.10% | $367 |
| $400,000 | 10% | 0.55% | $183 |
Notice that the monthly payment scales with the loan amount — a $400,000 loan costs more to insure than a $300,000 loan at the same down payment percentage. Also notice that moving from 5% to 10% down cuts the monthly insurance roughly in half. These relationships hold across any loan size.
What to watch for in your Loan Estimate
Your Loan Estimate breaks down the mortgage insurance cost in two places: the monthly payment section (which shows the dollar amount added to your payment) and the closing costs section (which shows any upfront insurance premiums). Read both sections to understand the full cost.
Check that the loan amount used to calculate insurance matches the actual amount you are borrowing. If you are putting down $50,000 on a $350,000 home, your loan is $300,000, and the insurance should be calculated on $300,000, not $350,000. Mistakes here are rare but worth catching before closing.
If you receive multiple Loan Estimates from different lenders, compare the insurance rates side by side. A lender quoting 0.55% is cheaper than one quoting 0.75% on the same loan size, and that difference adds up over years. Do not assume the lender with the lowest interest rate also has the lowest insurance rate.
Frequently Asked Questions
Can I pay off mortgage insurance early?
You cannot pay a lump sum to remove mortgage insurance before you reach 20% equity. Insurance is tied to your equity position, not to a separate account you can pay down. Your only option is to build equity faster through larger payments, or to refinance into a new loan once you have enough equity.
Does my credit score affect my mortgage insurance rate?
No. Mortgage insurance rates are based solely on your down payment percentage and loan type. Your credit score affects your interest rate, but not your insurance rate. Two borrowers with different credit scores but the same down payment pay the same mortgage insurance.
What if I put down 20% — do I avoid mortgage insurance entirely?
Yes. A 20% down payment means you own 20% of the home from day one, so the lender's risk is low enough that mortgage insurance is not required. This is why many borrowers aim for 20% down, even though it takes longer to save.
How much does an appraisal cost if I want to remove insurance early?
An appraisal typically costs $300 to $600, depending on the home's location and complexity. You pay this out of pocket if you request removal before automatic cancellation. Some lenders waive the appraisal if the home has appreciated enough that you clearly exceed 20% equity, but this is not may provide.
Is mortgage insurance tax deductible?
Mortgage insurance premiums were tax deductible under certain income limits in past years, but this deduction has expired and is not currently available. Check with a tax professional about your specific situation, as tax law changes and your circumstances may differ.