🪙 Down Payment & PMI Calculator

Down Payment and PMI: What Every Homebuyer Must Know Before Closing

When you sit down with a mortgage lender, two numbers will shape your entire loan experience more than almost anything else: your down payment percentage and your loan-to-value ratio. Together, they determine whether you'll owe Private Mortgage Insurance — a monthly cost that can add hundreds of dollars to your housing payment for years, sometimes a decade or more. Understanding how these figures interact, and how to optimize your upfront cash, can save you tens of thousands of dollars over the life of a loan.

What Is a Down Payment, Really?

A down payment is the lump sum you pay upfront toward a home's purchase price. The remainder becomes your mortgage loan. If you're buying a $450,000 home and put down $90,000, you're making a 20% down payment and borrowing $360,000.

The percentage matters far more than the dollar amount in isolation. Lenders evaluate risk using the loan-to-value ratio, which is simply your loan balance divided by the home's appraised value, expressed as a percentage. In the example above, the LTV is $360,000 ÷ $450,000 = 80%. This single number is the most important threshold in residential mortgage lending.

The 80% LTV Line and Private Mortgage Insurance

When your LTV exceeds 80% — meaning you're putting down less than 20% — most conventional mortgage lenders require Private Mortgage Insurance. Despite its name, PMI protects the lender, not you. If you default, the insurance company pays the lender a portion of their loss. You bear the cost, typically ranging from 0.5% to 1.5% of the original loan amount annually, depending on your credit score, loan size, and the insurer.

On a $360,000 loan with a 0.8% PMI rate, that's $2,880 per year, or $240 per month added to your mortgage payment. Over the seven or eight years it often takes to build 20% equity through regular payments, you could easily pay $20,000 or more in PMI premiums — money that builds no equity for you and disappears entirely.

How Down Payment Percentage Affects Your Total Cost

Most homebuyers focus on the monthly payment, but the cumulative cost picture is where the real story lives. Consider two buyers purchasing the same $400,000 home at a 7% interest rate on a 30-year fixed mortgage:

Buyer A puts down 5% ($20,000), borrowing $380,000. Their principal and interest payment is about $2,529/month, plus roughly $253/month in PMI (at 0.8%), totaling $2,782. It will take approximately 9 to 10 years of regular payments before their balance drops to 80% LTV and PMI can be cancelled.

Buyer B puts down 20% ($80,000), borrowing $320,000. Their principal and interest payment is about $2,129/month, with no PMI. That's $653 less per month than Buyer A, and over 10 years, Buyer B will have paid roughly $78,000 less between the higher monthly cost and PMI premiums.

The $60,000 difference in upfront cash pays for itself in about 7 years of monthly savings, and then keeps saving for the remaining 23 years of the loan.

Common Down Payment Thresholds and What They Mean

3% to 3.5%: The minimum for many conventional and FHA loans. Your LTV will be 96.5% to 97%, and you'll pay maximum PMI rates. FHA loans also charge an upfront mortgage insurance premium and annual MIP that behaves differently from conventional PMI and can last the life of the loan.

5% to 10%: Still triggers PMI, but at lower LTVs your PMI rate may be slightly lower and you'll build equity faster through payments. Some lenders offer lower PMI rates as you cross into the 85% to 90% LTV range.

15%: You're getting close. Your LTV is 85%, and with regular payments on a 30-year loan at moderate rates, you may reach 80% in as few as four to six years. PMI will cancel relatively soon, making this a reasonable middle ground if you can't swing 20%.

20%: The golden number. Conventional PMI disappears entirely. You start with equity, your monthly payment is lower, and you may qualify for better interest rates with some lenders. This is the threshold most financial planning advice points toward.

25% or more: You get further interest rate improvements with some lenders, and you've built a meaningful equity cushion against market fluctuations. If home values drop 10%, a buyer who put down 25% still has equity; one who put down 5% may be immediately underwater.

When Putting Down Less Than 20% Makes Sense

PMI isn't always the wrong choice. If you're buying in a rising market, getting into a home sooner and building equity through appreciation may outweigh years of PMI premiums. If your alternative to a smaller down payment is keeping cash in a low-yield savings account, deploying that capital as a down payment may be the better mathematical move — but if you'd invest the difference and earn returns exceeding your PMI cost, keeping more cash and accepting PMI could make sense.

The right answer depends on local market dynamics, your investment alternatives, your credit profile, and how long you plan to stay in the home. Our calculator above lets you run those numbers directly.

How to Remove PMI Once You Have It

Under the Homeowners Protection Act, lenders must automatically cancel PMI when your balance reaches 78% of the original purchase price, based on your original amortization schedule. You can request cancellation when you believe you've reached 80% LTV — usually through your regular payment schedule or a combination of payments and a new appraisal showing increased value.

If your home has appreciated significantly, you can often request removal with a new appraisal even before the scheduled cancellation date. Some lenders require two years of on-time payments before allowing appraisal-based removal. Contact your servicer for their specific process.

Piggyback Loans: An Alternative to PMI

Some buyers avoid PMI by taking out a "piggyback" loan — typically structured as an 80/10/10, where the first mortgage covers 80% of the purchase price, a second mortgage or HELOC covers 10%, and the buyer puts down 10% in cash. Since the first mortgage never exceeds 80% LTV, no PMI is required.

This strategy can work well when second mortgage rates are lower than PMI costs, or when the second mortgage is structured as a line of credit you can pay off quickly. However, the combined rate and payment calculation can be complex, and you're taking on two debt obligations rather than one. Run the full comparison before assuming a piggyback loan saves money.

Using This Calculator to Plan Your Purchase

The calculator above lets you toggle between entering a dollar amount and a percentage for your down payment — whichever you know. Enter your best estimate of an interest rate (check current rates from multiple lenders for accuracy), and use the PMI rate field to input the actual rate your lender quotes, or start with 0.8% as a reasonable middle estimate.

The elimination table shows you exactly how much additional cash you'd need to reach each common threshold, what your payment would be at each level, and whether PMI applies. Pay particular attention to the jump from 19% to 20% down — that single percentage point is often the most valuable dollar you can put toward a down payment.

Before closing day, get your lender's written confirmation of your PMI rate, the conditions under which it can be removed, and the exact LTV threshold required for cancellation. Armed with those numbers and the estimates from this calculator, you'll walk into one of the largest financial decisions of your life with your eyes fully open.