How PMI Is Calculated
PMI is charged as a percentage of your loan amount, not your home price. The calculator first finds your loan amount by subtracting your down payment from the price, then multiplies it by your annual PMI rate and divides by 12 for the monthly figure. It also computes your loan-to-value ratio (LTV), which is the loan divided by the home price, because that ratio determines both whether PMI applies and when it disappears.
Conventional loans generally require PMI whenever LTV is above 80%, meaning you put down less than 20%. Reach 20% equity and PMI is no longer required.
Worked Example
Suppose you buy a $300,000 home with 10% down, or $30,000. That leaves a $270,000 loan and a 90% LTV, so PMI applies. At a 0.5% annual PMI rate, the cost is $270,000 times 0.005, or $1,350 a year, which works out to $112.50 a month added to your mortgage.
The calculator also shows that automatic cancellation happens once your balance reaches 78% of the original $300,000, or $234,000. You can request removal even earlier at 80% LTV ($240,000), which is worth doing because every month of PMI is pure cost with no return to you.
Practical Tips
Track your balance toward 80%. Do not wait for automatic cancellation at 78%. Request removal the moment you hit 80% LTV to stop paying sooner.
Use appreciation to your advantage. If your home value has risen, a new appraisal may push your LTV below 80% faster than scheduled payments alone, letting you drop PMI early.
Compare the cost of waiting. Sometimes putting down a bit more, or making a few extra principal payments, eliminates PMI quickly and pays for itself in saved premiums.