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PMI vs a 20 percent down payment

Conventional PMI is charged when the down payment is under 20 percent of the price, until the amortised balance hits 80 percent of original price. On a $400,000 home with $20,000 down that is $190 a month for 124 months, $23,560 in total. At 20 percent down, months of PMI is 0.

 PMI on a small down payment20 percent down, no PMI
Starting LTV95 percent on $20,000 down, or 90 percent on 10 percent down.80 percent. The switch is already off.
\$400,000 home, 5 percent down$190 a month for 124 months, $23,560 in total, on a $380,000 loan.Not this product. 20 percent down on this house is $80,000 at closing.
\$350,000 home, 10 percent down$131.25 a month for 89 months, $11,681.25 in total.20 percent of $350,000 is $70,000 at closing, and months of PMI is 0.
What stops the riderThe amortised balance hitting 80 percent of original price, or a current-value appraisal in some cases.Nothing to stop. It never started.
What the extra cash isA smaller down payment, a larger loan, a rider on top of the payment.Cash at closing that is not earning a return and is not paying the loan down later.
The usual mash-upFolding the PMI rate into the loan rate for 30 years, which overstates the rider.Treating 19 percent down and 20 percent down as almost the same product.
On this page

80 percent is a switch

Loan-to-value is loan over value. Conventional PMI in the United States is typically charged until that ratio, on the amortised original-price clock, hits 80 percent. At 20 percent down it is already 80 percent on day one, so months of PMI is 0 and total PMI is $0.

On a $400,000 home with $20,000 down the loan is $380,000, LTV is 95 percent, and a 0.60 percent PMI rate is $190 a month for 124 months. That $190 sits on top of a $2,401.86 principal-and-interest payment. It is not added to the 6.5 percent rate.

How loan-to-value works is the ratio. How PMI works is the rider. The PMI calculator returns both.

The extra cash has a cost this table does not name

Whether bringing the extra points of down payment to closing is cheaper than paying PMI is a comparison of this page's PMI total against the cost of that extra cash: forgone return, or extra months of saving. This table names the PMI side. It will not name the opportunity cost of the extra cash.

FHA mortgage insurance is a different product and does not cancel at 80 percent LTV the same way. This is educational material, not financial advice.

Worked examples

5 percent down on a \$400,000 home

Home $400,000, down payment $20,000, rate 6.5 percent, 30 years, PMI 0.60 percent of the original loan. Monthly PMI, months of PMI, total PMI?

  1. Loan: 400000−20000=380000400000 - 20000 = 380000, so $380,000. Starting LTV: 95 percent.
  2. Monthly PMI: 380000×0.006/12=190380000 \times 0.006 / 12 = 190, so $190.
  3. Scheduled principal and interest: $2,401.86.
  4. The balance reaches 80 percent of $400,000, which is $320,000, in month 124. Total PMI: 124×190=23560124 \times 190 = 23560.

Monthly PMI is $190 for 124 months, $23,560 in total, on a $380,000 loan whose scheduled payment is $2,401.86. Starting loan-to-value is 95 percent.

10 percent down on a \$350,000 home

Home $350,000, down $35,000, rate 6 percent, 30 years, PMI 0.50 percent. Totals?

  1. Loan: 350000−35000=315000350000 - 35000 = 315000, so $315,000. Starting LTV: 90 percent.
  2. Monthly PMI: 315000×0.005/12=131.25315000 \times 0.005 / 12 = 131.25.
  3. Scheduled payment: $1,888.58. Months of PMI: 89. Total: 89×131.25=11681.2589 \times 131.25 = 11681.25.

Monthly PMI is $131.25 for 89 months, $11,681.25 in total, on a $315,000 loan. Starting loan-to-value is 90 percent. The scheduled payment is $1,888.58.

20 percent down, no PMI

Home $400,000, down $80,000, same 6.5 percent 30-year loan, PMI rate 0.60 percent. How many months of PMI?

  1. Loan: 400000−80000=320000400000 - 80000 = 320000, so $320,000. Starting LTV: 80 percent.
  2. The balance is already at the 80 percent threshold, so months of PMI is 0 and total PMI is $0.
  3. Monthly PMI would have been 320000×0.006/12=160320000 \times 0.006 / 12 = 160, but it is never charged. Scheduled payment is the principal-and-interest on $320,000.

Months of PMI is 0 and total PMI is $0, because a $320,000 loan on a $400,000 home is already 80 percent LTV. The scheduled payment is still computed; the insurance rider is not.

20 percent down on the \$350,000 home

Home $350,000, down payment $70,000, rate 6 percent, 30 years, PMI 0.50 percent. How many months of PMI?

  1. Loan: 350000−70000=280000350000 - 70000 = 280000, so $280,000. Starting LTV: 80 percent.
  2. The balance is already at the 80 percent threshold, so months of PMI is 0 and total PMI is $0.

Months of PMI is 0. Twenty percent of $350,000 is $70,000 at closing, and that is the cash that turns the rider off on this house.

Common questions

Does PMI fall as I pay the loan down?

Not under the original-loan-percent form. The monthly amount stays flat until cancellation, then drops to zero. A declining-balance quote is a different product.

Can a rising home price cancel PMI sooner?

Sometimes, by a current-value appraisal, which is a request to the servicer. This page uses original purchase price, the schedule that does not need an appraisal.

Is 19 percent down almost 20 percent?

Not as a product. One of them has a monthly rider for years. The other does not. The last point of down payment is the switch, not a rounding.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.