PMI Removal Calculator

PMI removal calculator to calculate the monthly PMI payment for your mortgage. The PMI payoff calculator will show you the cost of PMI and find out when your PMI will be paid off.

What is PMI?

PMI is private mortgage insurance that borrowers are required to pay when their down payment is less than 20% of their home value for conventional mortgages. Conventional mortgages are those that are not sponsored by the government such as the USDA, VA, and FHA loans. Borrowers who put down less than 20% are viewed as riskier to the banks and therefore are required to pay additional mortgage insurance to protect the banks in case the borrower defaults. During financial difficulties, it's much easier for borrowers with less equity in the house to stop payments and walk away. To offset this additional risk and protect themselves, banks require the borrowers to pay for the PMI or when loan-to-value (LTV) is greater than 80% until the borrower's equity in the house exceeds 20%. Depending on the size of a mortgage, the monthly PMI could be quite expensive. The PMI rate is usually about 0.3 percent to about 1.5 percent of the original loan amount per year depending on the borrower's credit score and other factors. To avoid surprises when the monthly payment is due, borrowers who are planning to put down less than 20% should make proper calculations to include PMI into their budget along with taxes and insurance.

When does PMI drop off?

Banks and lenders will drop off PMI once the borrower's equity on the house exceeds 20%, which may take a few years. Borrowers should double-check with the bank to see if the PMI is removed after they build up enough equity in the house. There are a few ways that we will discuss below that will help to get rid of PMI altogether or payoff earlier.

How to calculate equity to remove PMI?

The PMI removal calculator will calculate the equity needed to remove PMI payment, and the date when you have enough home equity. To calculate PMI removal manually, multiply the original home price by 0.8. When the borrower's balance reaches that amount, the PMI will be removed. For example, for a house with a price tag of 1 million, the borrower will stop paying for PMI when his balance is $800,000, since $1,000,000 * 0.8 = $800,000. At that time, the borrower would build up 20% of the equity in his house or $200,000. To make the borrower's life easier, we built this PMI removal calculator that shows exactly when the PMI will be paid off. Simply enter the home value, mortgage amount, and the yearly PMI rate, and the PMI payoff calculator will get an estimated monthly PMI payment. The PMI Calculator will calculate the payoff date for the private mortgage insurance, and the total amount of PMI that a borrower has paid over the years. Private mortgage insurance is expensive and adds unnecessary costs for the borrowers, borrowers would want to get rid of it as soon as possible. Before we get into that, we need to first understand the concept of loan to value ratio, or the LTV.

What is the loan to value ratio?

The loan to value ratio or LTV is the ratio between the size of a loan when compared to the value of the home price. For example, if a house is worth $500,000, and the borrower puts 10% as a down payment, which is $50,000. That means the borrower is borrowing $450,000 from the bank, because $500,000 minus $50,000 is $450,000. To calculate LTV, divide $450,000 by $500,000 which equals 0.9 or 90% as a ratio. Since the LTV is 90%, that means the borrower would need to pay for PMI until LTV is 80% or less. The LTV is recalculated based on the principal owed on the loan as soon as the borrower starts making monthly payments. Since LTV is calculated based on the loan size and the value of the home price, there are two ways borrowers can lower their LTV, reduce the size of the loan, or increase the value of their home. To learn more on how to calculate LTV, check out the loan to value ratio calculator.

How to get rid of PMI?

Following are a few ways on how to get rid of PMI.

• 20% Down Payment - The best way borrowers can avoid paying for PMI is to put at least 20% as a down payment on their house. A 20% down payment will make their LTV less than 80% and hence no need to pay for private mortgage insurance.
  
  
• More Affordable House - Borrowers who cannot make a 20% down payment on their house may consider finding a house that is more affordable. If the housing price is expensive in the area where they live, they can either find a smaller house, or a house in a different city or relocate to another state where housing is more affordable. Not only is housing more affordable in some states, but the overall cost of living is cheaper which allows borrowers to save even more money.
  
  
• Extra Payments - Another option the borrowers have is to make extra payments each month towards principal which will reduce the size of their loan and lower their LTV. Before starting making extra payments, a borrower should talk to his bank just to make sure there are no fees or penalties for extra payments.
  
  
• Home Appreciation - As the home value appreciates, borrowers can get an appraisal to reevaluate their house. If their home goes up in value, their LTV will be lower. However, make sure to talk to the bank first and hire an appraisal company that is approved by the lender.
  
  
• Home Improvement - Make incremental home improvements, such as installing solar panels, or redoing the kitchen or the bathroom. Every improvement that a borrower does to the house may increase the value of his home price and hence lowers his LTV.
  
  
• Second Mortgage - Another option that borrowers may consider is getting a second mortgage, also known as a piggyback loan. Borrowers can get a first mortgage with a 20% down payment, avoiding paying for PMI. They can then obtain a second mortgage, usually with a higher interest rate, but it is more affordable than paying for the PMI. Use the piggyback loan calculator to estimate the costs and see whether a second mortgage makes sense.
  
  

To learn more about getting a second mortgage, and how to calculate the cost of a second mortgage calculator, visit the second home mortgage calculator.

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