Alyssa Lane
Private mortgage insurance (PMI) is a type of insurance that protects lenders in case the borrower is unable to make their mortgage payments. It is typically required for homebuyers who pay less than 20% of the total loan payment. The cost of PMI varies depending on factors such as credit score, down payment, and loan amount, and it is usually included in the total loan payment. PMI rates have decreased in recent years, making it a more advantageous option for homebuyers.
| Characteristics | Values |
|---|---|
| What is PMI? | Private Mortgage Insurance (PMI) is a type of home loan insurance that protects the lender in case the buyer is unable to make their mortgage payments. |
| Who needs PMI? | PMI is typically required for conventional mortgage borrowers who put down less than 20% on a home. |
| How to pay PMI? | In most cases, you will pay for PMI as part of your total loan payment, which also includes the mortgage principal, interest, and taxes. |
| PMI costs | The cost of PMI depends on factors such as credit score, down payment, and loan amount. A higher premium is charged for a smaller down payment. |
| PMI calculator | You can use a PMI calculator to estimate the cost of PMI for a conventional loan with less than a 20% down payment. |
| Reducing PMI costs | Building your credit score, paying down debt, and increasing your down payment can help reduce PMI costs. |
| Getting rid of PMI | Although PMI may be required to close your home loan, you can get rid of it later. |
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What You'll Learn
Private mortgage insurance (PMI) cost
Private mortgage insurance (PMI) is an extra expense for borrowers who take out a conventional mortgage with a down payment of less than 20%. PMI is typically paid through a monthly premium that is part of your mortgage payment, but it can also be paid upfront at closing or a combination of both. The cost of PMI depends on several factors, including the size of the loan, the down payment amount, debt-to-income ratio, and credit score.
The larger the down payment, the lower the PMI cost. Similarly, borrowers with higher credit scores and lower debt-to-income ratios tend to pay lower PMI rates. The average cost of PMI for a conventional home loan ranges from 0.46% to 1.5% of the original loan amount per year, according to the Urban Institute's Housing Finance Policy Center. At these rates, PMI on a $300,000 mortgage would cost $1,380 to $4,500 per year, or $115 to $375 per month.
Borrowers can use PMI calculators to estimate their monthly mortgage payments, including PMI. These calculators take into account factors such as the home value, interest rate, and loan term to provide an estimate of the PMI cost. It's important to note that PMI calculators only provide an estimate, and the actual cost of PMI may vary.
While PMI is an added expense, it enables homebuyers to achieve their homeownership goals sooner by allowing them to purchase a house with a smaller down payment. Building their credit score, paying down debt, and saving for a larger down payment can help homebuyers reduce their PMI costs.
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PMI calculator
A PMI calculator is a useful tool for estimating the costs of private mortgage insurance for a conventional loan with less than a 20% down payment. It can help you understand your upcoming mortgage expenses and determine how much home you can afford.
The calculator takes into account factors such as the loan amount, interest rate, and credit score to provide an estimate of the PMI rate and the monthly PMI cost. It can also help create an amortization schedule, detailing the principal and interest amounts paid each month.
For example, let's consider a $300,000 mortgage. The PMI cost for this loan could range from $1,380 to $4,500 per year, or $115 to $375 per month, depending on various factors.
It's important to note that the PMI calculator provides an estimate, and the actual PMI rates may vary based on individual circumstances. Building your credit score, paying down debt, and increasing your down payment can help reduce PMI costs. Additionally, PMI may not always be necessary, as some lenders will waive it if you have 20% equity in your home.
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Credit score impact
Private mortgage insurance (PMI) is a type of insurance that you are typically required to pay if you take out a conventional mortgage with a down payment of less than 20%. PMI protects the lender in case the buyer cannot make their mortgage payments.
Your credit score can impact the mortgage process in several ways. Firstly, a higher credit score can help you secure more favourable mortgage terms and interest rates. Lenders use credit scores to assess borrower risk and determine how well an individual manages debt. A higher score indicates that you are a trustworthy borrower, which may lead to more favourable mortgage terms.
Additionally, your credit score can influence the cost of private mortgage insurance. While PMI is typically required for those with lower down payments, building your credit score, paying down debt, and increasing your down payment can help reduce your overall PMI costs. A higher credit score demonstrates your ability to handle financial responsibilities and can lead to lower insurance premiums.
Moreover, your credit score can impact the overall cost of homeownership. A higher credit score may result in lower premiums for homeowners insurance. Insurance companies use credit scores to assess risk, and a strong credit history indicates lower risk, potentially leading to reduced insurance costs. Conversely, poor credit can make finding affordable home insurance more challenging, with higher premiums being charged to those with lower credit scores.
Finally, your credit score can impact your ability to secure a mortgage. Lenders prefer to see a diverse credit profile, including various types of credit such as credit cards, mortgages, and loans. Multiple hard inquiries in a short period may negatively impact your score and raise concerns for lenders. Therefore, it is essential to manage your credit score and monitor your credit report to ensure accurate information.
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Interest rates
The interest rate is the amount your lender charges you for using their money, shown as a percentage of your principal loan amount. The annual percentage rate (APR) represents the true yearly cost of your loan, including any fees or costs in addition to the interest you pay to the lender.
Mortgage rates fluctuate over time, influenced by various economic factors. For example, mortgage rates declined one week in June 2025, with 30-year fixed-rate loans averaging 6.72%. The Federal Reserve's decision to maintain the federal funds rate can impact mortgage rates, although they generally move in tandem with 10-year Treasury yields.
Lender-paid mortgage insurance is an option where the lender covers the insurance, but you typically pay a higher interest rate. This can be useful for buyers who don't have sufficient savings for a 20% down payment.
The interest rate you receive can be locked in for a set period through a mortgage rate lock, ensuring that you secure the offered rate. Most lenders offer a 30- to 45-day rate lock for free, but extending this period may incur a fee.
It's important to compare national average mortgage rates with top offers to gauge potential savings. For instance, during a week in June 2025, the top offers on Bankrate were X% lower than the national average, translating to substantial annual savings on a $340,000 30-year loan.
Additionally, mortgage points or discount points are a form of prepaid interest. By paying this upfront, you can secure a lower interest rate and monthly payment. Each mortgage point is approximately 1% of your total loan amount, so on a $250,000 loan, one point would cost around $2,500.
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PMI pros and cons
Private Mortgage Insurance (PMI) is an insurance policy that protects the lender in the event of a borrower defaulting on their mortgage. It is usually required if the borrower has a down payment of less than 20% of the property value. The cost of PMI can range from 0.5% to 1.5% of the loan amount per year, paid in monthly instalments.
Pros:
- It allows you to buy a house sooner without using up all your savings. A 20% down payment is a large sum of money, and it can take years to save this amount. With PMI, you can become a homeowner sooner and start building wealth through home equity.
- You may be able to deduct the cost of PMI on your taxes as mortgage interest.
- You still keep control of your budget. PMI can be viewed simply as a cost of building wealth, and you can adjust your budget accordingly.
Cons:
- PMI increases your monthly mortgage payments. This additional cost could be invested or saved instead.
- PMI can last for many years, potentially adding up to a significant amount over time.
- PMI protects the lender, not the borrower. In the event of a default, the PMI provider reimburses the lender, and the borrower may still face negative consequences such as foreclosure.
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Frequently asked questions
Mortgage insurance, also known as PMI or MIP, is a type of insurance that protects the mortgage lender if the borrower is unable to make payments.
Mortgage insurance is typically required for conventional mortgages where the borrower has made a down payment of less than 20%.
The cost of mortgage insurance varies depending on factors such as credit score, down payment amount, and loan amount. Generally, the higher the risk perceived by the insurer, the higher the premium.
Building your credit score, paying down debt, and increasing your down payment can help reduce mortgage insurance costs.
Mortgage insurance is typically paid as part of your total loan payment, which includes the mortgage principal, interest, and taxes. Your lender will then forward the insurance payment to the insurer.
