How to Calculate Mortgage Insurance (PMI)
Find the purchase price., Determine the loan-to-value (LTV) ratio., Determine the terms of the loan., Determine the mortgage insurance rate., Do the math.
Step-by-Step Guide
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Step 1: Find the purchase price.
Even if you are just beginning to look for a home, you probably already have a good idea about the price of the home you can afford to purchase.
The purchase price of the home will help you determine your loan-to-value ratio. -
Step 2: Determine the loan-to-value (LTV) ratio.
The loan-to-value ratio is a simple way for lenders and insurance agents to calculate how much you've paid and how much you owe.
The LTV ratio is calculated by taking the amount of money you borrowed on the loan and dividing it by the value of your property.
The higher the LTV, the more your mortgage insurance will cost.For the purposes of this article, let's assume a loan amount of $225,000.
Say you're buying a house that costs $250,000 and you've put 10% down on the house, or $25,000.
Because you've only paid 10%, and 90% is still outstanding, your loan is $225,000 and your loan-to-value ratio is 90 percent. , The type and length of your loan can also play a factor in the mortgage insurance amount.
Shorter loans require lower rates of the mortgage insurance.
However, a 30 year loan is the most popular time period.
Similarly, fixed loans cost less than adjustable-rate loans.
If you have a Federal Housing Association (FHA) loan, you will have a type of insurance called Mortgage Insurance Premium (MIP) instead of PMI.
This is still a type of mortgage insurance, but the structure of the loan is slightly different.
Be sure to read the terms of the loan carefully to understand how MIP might be calculated for you., PMI fees vary, depending on the size of the down payment and the loan, from around
0.3 percent to
1.15 percent of the original loan amount per year.The easiest way to determine the rate is to use a table on a lender's website.
If you are already working with a lender, you can use the one on your lender's website.
If you do not yet have a lender, you can still find a calculator online to estimate the rate.
One such calculator can be found at mgic.com/ratefinder., The good news is that calculating mortgage insurance is easy.
After you know the numbers, all you need to do is multiply and divide to determine the amount of mortgage insurance.
First, determine the annual mortgage insurance amount.
Do this by multiplying the loan amount by the mortgage insurance rate.
Here, if the remaining value of your loan was $225,000 and the mortgage insurance rate was .0052 (or .52%) then: $225,000 x .0052 = $1170.
Your annual mortgage insurance payment would be $1170.
To determine the monthly payment amount, divide the annual payment by 12: $1170 / 12 = $97.50/month.
You can add your monthly mortgage insurance amount to your principal, interest, taxes, and insurance payment to determine your total monthly house payment. -
Step 3: Determine the terms of the loan.
-
Step 4: Determine the mortgage insurance rate.
-
Step 5: Do the math.
Detailed Guide
Even if you are just beginning to look for a home, you probably already have a good idea about the price of the home you can afford to purchase.
The purchase price of the home will help you determine your loan-to-value ratio.
The loan-to-value ratio is a simple way for lenders and insurance agents to calculate how much you've paid and how much you owe.
The LTV ratio is calculated by taking the amount of money you borrowed on the loan and dividing it by the value of your property.
The higher the LTV, the more your mortgage insurance will cost.For the purposes of this article, let's assume a loan amount of $225,000.
Say you're buying a house that costs $250,000 and you've put 10% down on the house, or $25,000.
Because you've only paid 10%, and 90% is still outstanding, your loan is $225,000 and your loan-to-value ratio is 90 percent. , The type and length of your loan can also play a factor in the mortgage insurance amount.
Shorter loans require lower rates of the mortgage insurance.
However, a 30 year loan is the most popular time period.
Similarly, fixed loans cost less than adjustable-rate loans.
If you have a Federal Housing Association (FHA) loan, you will have a type of insurance called Mortgage Insurance Premium (MIP) instead of PMI.
This is still a type of mortgage insurance, but the structure of the loan is slightly different.
Be sure to read the terms of the loan carefully to understand how MIP might be calculated for you., PMI fees vary, depending on the size of the down payment and the loan, from around
0.3 percent to
1.15 percent of the original loan amount per year.The easiest way to determine the rate is to use a table on a lender's website.
If you are already working with a lender, you can use the one on your lender's website.
If you do not yet have a lender, you can still find a calculator online to estimate the rate.
One such calculator can be found at mgic.com/ratefinder., The good news is that calculating mortgage insurance is easy.
After you know the numbers, all you need to do is multiply and divide to determine the amount of mortgage insurance.
First, determine the annual mortgage insurance amount.
Do this by multiplying the loan amount by the mortgage insurance rate.
Here, if the remaining value of your loan was $225,000 and the mortgage insurance rate was .0052 (or .52%) then: $225,000 x .0052 = $1170.
Your annual mortgage insurance payment would be $1170.
To determine the monthly payment amount, divide the annual payment by 12: $1170 / 12 = $97.50/month.
You can add your monthly mortgage insurance amount to your principal, interest, taxes, and insurance payment to determine your total monthly house payment.
About the Author
Hannah Lee
Professional writer focused on creating easy-to-follow pet care tutorials.
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