Private Mortgage Insurance (PMI): Cost, Calculation, and Cancellation
PMI (Private Mortgage Insurance) is required on conventional loans when the down payment is less than 20%. It protects the lender, not the borrower, if the loan defaults.
What You'll Learn
- What PMI is and who it protects
- PMI cost (0.5%–1.5% annually)
- How PMI is calculated
- Ways to avoid PMI (20% down, lender-paid PMI, piggyback loans)
- When PMI can be cancelled (78% LTV automatic, 80% LTV request)
The Full Explanation
PMI is one of the most misunderstood mortgage costs. CTC Processing ensures PMI calculations are correct and that borrowers understand their options — avoiding PMI or planning for its removal.
Frequently Asked Questions
How much does PMI cost?
PMI typically costs 0.5%–1.5% of the loan amount annually, paid monthly. On a $400,000 loan, that's $167–$500/month. The rate depends on credit score, LTV, and loan type.
Can I cancel PMI?
Yes — PMI cancels automatically when you reach 78% LTV based on the original amortization schedule. You can request cancellation at 80% LTV with a current appraisal showing your equity.
What is lender-paid PMI (LPMI)?
Some lenders offer LPMI where you pay a slightly higher interest rate instead of monthly PMI. This can be beneficial if you plan to sell before PMI would cancel. CTC can model both scenarios.