Private mortgage insurance (PMI) is a monthly premium on a Conventional loan when you borrow more than 80% of the home's value. It protects the lender, and it's what lets Conventional programs accept 3% down on a single-family home and 5% down on 2 to 4 units. PMI is priced by your credit score, and it comes off once you build enough equity.
What PMI costs by credit score
The rate is a yearly percentage of the loan, split into 12 monthly charges. QualRate's calculator runs from about 1.50% a year near a 620 score down to 0.46% at 760 and up.
On a $350,000 home with 5% down, the loan is $332,500:
- At a 760 score: $332,500 × 0.46% = $1,529.50 a year, or $127.46 a month.
- Near a 620 score: $332,500 × 1.50% = $4,987.50 a year, or $415.63 a month.
A gap of about $288 a month makes credit score count for more on Conventional than on FHA, where the annual premium (0.55% at 3.5% down, 0.50% at 5% down) is the same at every score. Buyers in the low 600s often pay less monthly insurance with FHA, and buyers above 700 often pay less with Conventional. A rapid rescore, a fast credit update after you pay down a card, can move a buyer into a cheaper PMI tier before closing.
When PMI comes off
Federal law gives three exits for PMI on a home you live in:
- At 80%, by request. Once the balance is scheduled to reach 80% of the original value, you can ask the servicer in writing to cancel it. You'll need a good payment history, no second mortgage on the home, and possibly proof the value hasn't dropped.
- At 78%, automatically. The servicer must end PMI when the balance is scheduled to hit 78% of the original value, as long as you're current.
- At the midpoint. On a 30-year loan, PMI ends after 15 years regardless of the balance, again if you're current.
On the $332,500 loan above at a 5.75% rate, the scheduled balance reaches 80% of the $350,000 value ($280,000) at payment 115, a little under 10 years in. Automatic removal at 78% ($273,000) arrives at payment 126. Extra principal payments get you to 80% sooner, because a request can be based on the balance you've actually paid down.
PMI compared with FHA, VA and USDA
VA loans have no monthly mortgage insurance. USDA charges a 0.35% annual fee for the life of the loan. FHA's annual MIP lasts as long as the loan when you put less than 10% down. Of the four, PMI is the only charge that ends automatically as your loan-to-value drops.
Compare the monthly cost of FHA and Conventional at your credit score in the mortgage payment calculator. AAA Capital Funding quotes both on the same home, so call 888-601-8344 and we'll show you which one costs less each month.