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How to Calculate PMI for Your Mortgage

Imagine you have found the perfect house for your family. The yard, the finished basement, the two-car garage, all the bedrooms, and bathrooms -- it’s the ideal space. But there is a problem. The standard 20% down payment is more than you can afford.

But wait! You don’t need to walk away because Private Mortgage Insurance (PMI) can help you get that perfect home by assisting you with down payment through your monthly mortgage payments.

PMI is a sum added to your monthly mortgage payment that provides insurance for the lender. After your payments have reduced the principle of the loan to 80%, meaning you have built 20% equity into the home, you can ask your lender to cancel the PMI. When the principle is down to 78%, the lenders will be required to cancel the PMI.

If you use tools and information to help calculate PMI you’ll need, it will help you estimate your total payment -- mortgage and PMI included. To do this accurately, follow these steps:

1. Determine the price range of the homes you are interested in
PMI moves up and down based on the mortgage amount. Let's take a range of $200,000 to $400,000.

2. Determine what amount you can put down
For this example, $20,000 is your maximum down payment.

3. Determine what percentage of the purchase price your down payment is
Divide the purchase price into your down payment. If the purchase price is $200,000, your $20,000 down payment is equal to .1, or 10%. If the price is $400,000, then $20,000 is equal to .5, or 5%.

4. Calculate the loan-to-value ratio
Take the percentage from the previous step and convert it into a whole number. For example, .5 or 5% becomes 5. Subtract this number from 100 (100 - 5 = 95). Now, take the remainder and convert it into a percentage. If the remainder is 95, the percentage is 95%.

5. Calculate the PMI
Enter these figures into an online PMI calculator online to get the yearly cost of PMI.

6. Determine the monthly payment
Divide this number by 12 (for 12 months) then add the number to the monthly mortgage payment to see what your total monthly payment will be.

If you’re interested in buying a home, Private Mortgage Insurance, and learning more about how to calculate PMI, download our eBook now.

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