Calculate Private Mortgage Insurance

For those of you who are going to need private insurance on your mortgage you are probably wondering how to calculate private mortgage insurance. Private Mortgage Insurance, or PMI is a sum that is paid to the lender in the event that the person taking out the mortgage isn’t able to pay back the loan. For private mortgage insurance you will have to figure out what amount that you will have to pay depending upon the amount that you are trying to borrow. Don’t worry, how do you calculate private mortgage insurance is a question asked by many future home owners who require it, and it’s not that hard.

Let’s start with the amount that you want to borrow. That’s where calculating private mortgage insurance starts. Then, we need to get the amount that you want to put down. Typically, this type of insurance is only required if you are putting down less than 20 percent of the home’s sale price, so say that you were borrowing $200,000 and you were putting down 10 percent, or $20,000. Now, we need to find what is called the LTV or Loan to Value Ratio. This is determined by dividing the balance of the mortgage, in our case $180,000, by the appraised value of the home, let’s say it’s $200,000.

In this case it is 90 percent. To require private mortgage insurance it should be above eighty percent, which it is in this case. If you were able to put $40,000 down on your $200,000 home then you would not be required to carry the private mortgage insurance. There are other other types of loopholes that allow you to not have to carry private mortgage insurance such as loan piggybacking, but we won’t get into that here. Ask your lender or financial adviser if you want some alternatives to private insurance premiums.

Now, we’ll look up the amount on the lenders PMI chart. Each one is a little bit different so there is no way that we could say for certain here what your lender’s chart is going to say. However, let’s just use a number so that you can see how the theory works. Let’s say you look up on your lender’s chart and find that the range is .5 percent of half of a percent. Now, we can find out what the annual cost of PMI is for you buy finding out what half a percent is of your remaining balance. You have $180,000 remaining, so half a percent of that would be $900.

Now is the easy part when it comes to private mortgage insurance calculations. You’ll divide your yearly cost by the number of months in a year – twelve – and voila, you have your monthly PMI premium. In our case it is $75 a month. Keep in mind that once your LTV drops below eighty percent that you will no longer be required to carry private mortgage insurance so keep an eye on your payment schedule so that you can know when that happens and contact your lender to get it removed. So, a little math and you can figure out your private mortgage insurance premium quite easily.