Housing & property
Private mortgage insurance (PMI): Definition, Formula and Example
PMI is insurance that protects the lender against certain losses if a borrower defaults on a conventional mortgage; it does not insure the borrower’s equity.
Scope: U.S. conventional mortgage insurance; no lender quote or cancellation eligibility is asserted.
Other names and related labels: PMI; Conventional mortgage insurance.
How it works
PMI is commonly required for a conventional purchase loan with less than 20% down, but pricing and arrangements vary. Premiums may be monthly, upfront or lender-paid through different pricing. Government-backed loans use different insurance or guarantee programs.
Illustrative monthly premium = stated annual premium amount / 12
If an illustrative premium rate is applied to a loan balance, state that base. Actual pricing, renewal bases and cancellation rights are product-specific.
An assumed 0.5% annual premium on $200,000
Use a hypothetical premium rate solely for arithmetic.
- Annual premium: $200,000 × 0.005 = $1,000.
- Monthly equivalent: $1,000/12 ≈ $83.33.
The illustrative monthly premium is $83.33, separate from principal and interest.
Hypothetical annual rate and fixed base; not a quote or a cancellation calculation.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
PMI is not homeowners insurance or FHA mortgage insurance
It does not repair a damaged home or protect the borrower from foreclosure. Cancellation and termination have specific conditions. FHA insurance and VA guarantee-related fees must be evaluated under their own rules.
Explore with a calculator
- Mortgage Calculator
Explore a conventional mortgage’s entered insurance assumptions.
- FHA Loan Calculator
Model the tool’s FHA-specific mortgage insurance assumptions.
- VA Mortgage Calculator
Review the tool’s VA funding-fee and eligibility assumptions separately.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
Calculation methodology and review status · All glossary terms