Is PMI decreased the closer you get to a 20% down payment?

7 Replies

Hello BP,

I'm wondering if the amount of PMI is decreased the closer you get to a 20% down payment? OR is it pretty black and white... you either put 20% down or not.

Thank you

Unless you put 20% down, you pay pmi until you can show a minimum of 80% loan to value either due to payments, or a combination of payments and appreciation. The bank will likely require an appraisal to prove the loan to value requirement has been met. There is no prorated pmi that I know of that is reduced cost as you make payments.

Originally posted by @Benjamin Blackburn :

Hello BP,

I'm wondering if the amount of PMI is decreased the closer you get to a 20% down payment? OR is it pretty black and white... you either put 20% down or not.

Thank you

15% down will have significantly less PMI than 5% down, because less is being insured.

Fun fact: PMI is priced out essentially identically to mortgage loan interest rate pricing. Your LTV, FICO, purpose of mortgage, and other loan level pricing adjustments apply. LLPAs are different, concept is identical.

In an honest world, we would just take that 1.15% or 0.52% and tack it onto your interest rate. Or quote your interest rate as:

  • 4.125% (+ 1.15% PMI) (1)

But no no, we(2) have this elaborate scheme in place of smoke and mirrors to make you THINK that you're getting 4.125% with 5% down. You're not, in spite of what allll the paperwork says. PMI + P&I at 5% down with a note rate of 4.125% is going to have an effective interest rate near or north of 5% taken together. But you will be quoted an interest rate and APR in the 4s, and none of the official paperwork will say this.

Take P&I + PMI, plug it into a financial calculator, and solve for the interest rate to see for yourself.

(1) 1.15% was what the last 5% down owner occupied deal I did worked out to be. He had crummy credit and couldn't go FHA because he already had one and did not qualify for any of the exclusions to "one fha loan at a time." Note that from what I have seen, every PMI provider has basically identical pricing. You might shop lenders and find 0.125% better to rate, but when I shop PMI it's like 0.005% difference, or identical.

(2) "We" being my industry, not me personally. I tell it how it is, and you either deal with it or you walk. :P

Radian is one of the big mortgage insurance companies out there. You can get a PMI quote from them on their website. You can see exactly how it varies depending upon down payment size, credit quality, etc.

Radian.biz

@Darren Sager has a point. Recent changes force PMI for the life of the loan, so read the mortgage details. Last time I had a PMI loan, the rate was fixed until I could apply for the rescinding and prove an LTV < 80%