Private mortgage insurance (PMI) is required whenever you put down less than 20% on a conventional mortgage. It protects the lender — not you — in case you default. PMI typically costs between 0.3% and 1.5% of your original loan amount per year, paid monthly. On a $300,000 loan, that's $75-375/month added to your payment.
The standard PMI rate is around 0.55% of the original loan amount. The formula is straightforward:
Monthly PMI = (PMI rate × original loan amount) ÷ 12
Example: 0.55% × $280,000 ÷ 12 = $128/month
Your actual rate depends on your credit score, down payment percentage, and loan type. Better credit scores get lower PMI rates. Someone putting 15% down with a 780 credit score might pay 0.3%, while someone putting 5% down with a 680 score might pay 1.2% or more.
Let's look at a concrete example. On a $350,000 home with 5% down ($17,500), the loan amount is $332,500. At the standard 0.55% PMI rate:
| Detail | Amount |
|---|---|
| Monthly PMI | $152 |
| Months until PMI drops off | ~39 months |
| Total PMI paid | ~$5,800 |
That $5,800 is the real cost of not having 20% down. It's not insignificant, but it's often smaller than people expect — and much smaller than waiting years to save up to 20% while home prices appreciate and rents increase.
PMI is removed when your equity reaches 20% of the original home value. Equity builds through two channels: your monthly principal payments and home appreciation. With 3.5% annual appreciation, a home bought at $350,000 is worth about $362,000 after one year — that appreciation counts toward your 20% equity threshold.
In the example above, the combination of principal payments and 3.5% appreciation gets you to 20% equity in about 39 months — just over 3 years. After that, PMI disappears and your monthly payment drops by $152.
Important: PMI doesn't remove itself automatically in most cases. Under federal law, your lender must cancel PMI when your loan balance reaches 78% of the original value based on the amortization schedule. But you can request cancellation earlier — at 80% — by contacting your lender and potentially getting an appraisal to prove your home's current value.
This is the real question. Many people delay buying for years to avoid PMI, but they forget to account for rising home prices and increasing rents during that time.
If home prices are growing at 3.5% per year, a $350,000 home costs $362,250 next year and $375,130 the year after. That's $25,000 more in just two years — far more than the $5,800 you'd pay in total PMI. Meanwhile, your rent keeps going up.
In most scenarios, buying now with PMI and having it drop off in 3-4 years is financially better than renting for 3-4 more years while trying to save to 20%. But the answer depends on your specific rent, home price, and savings rate.
The calculator shows your PMI cost, when it drops off, and whether buying now with PMI beats waiting. Adjust the PMI rate to match your situation.
Calculate with PMI →PMI costs real money — typically $100-300/month for 3-5 years. But it's a temporary cost that enables homeownership, and in most rising markets, paying PMI now beats waiting years to save a larger down payment. Don't let PMI be the reason you delay buying if the rest of the math works in your favor. Run the numbers with your actual down payment to see the real impact.