Private mortgage insurance

PMI exists because a small down payment leaves the lender more exposed if the house is sold in a shortfall. The premium is typically a percent of the original loan, paid monthly, and it does not fall as the principal falls. It sits on top of the scheduled principal-and-interest payment. Adding the PMI rate to the note rate and recomputing the payment describes a different loan, one whose extra charge lasts the whole term instead of stopping when the balance crosses the threshold. The loan payment calculator is the principal-and-interest piece. PMI is the insurance rider, and the two have different end dates.

Under US rules a borrower can usually ask for cancellation once the amortised balance hits 80 percent of the original purchase price, and cancellation is automatic a little later, at 78 percent. The PMI calculator uses 80 percent of original price on the amortisation schedule, which is the borrower-request point. It does not revalue the house. A rising market can get you there sooner; a falling market later.

At 20 percent down, loan-to-value is already 80 percent on day one, so months of PMI is zero. That is why 20 percent is the number people quote, and why 19 percent down and 20 percent down are not almost the same product. Extra principal shortens the wait because the balance hits 80 percent sooner. FHA mortgage insurance is a different product with an upfront premium and, on many loans, an annual premium that does not cancel at 80 percent. Do not run an FHA loan through a PMI identity and call it PMI.