Calculating PMI Insurance

Private Mortgage Insurance, or PMI for short, is a type of mortgage insurance that is required by lenders when a borrower is unable to provide a down payment of at least 20% of the home’s purchase price. PMI insurance protects the lender in case the borrower defaults on the mortgage.

How is PMI Insurance Calculated?

The amount of PMI insurance you will need to pay is based on a number of factors, including the size of your down payment, the type of mortgage you have, and the size of your loan.

The Size of Your Down Payment

The amount of your down payment plays a key role in determining the cost of your PMI insurance. The smaller your down payment, the higher your PMI premiums will be. This is because lenders consider borrowers with smaller down payments to be higher risk.

Typically, PMI premiums will range from 0.3% to 1.5% of the total loan amount per year. For example, if you have a $200,000 loan and your PMI premiums are 1%, you will be paying $2,000 per year, or $167 per month, in PMI insurance.

The Type of Mortgage You Have

The type of mortgage you have can also affect the cost of your PMI insurance. For example, if you have an adjustable-rate mortgage, your PMI premiums may be higher than if you have a fixed-rate mortgage.

Generally, the longer your loan term, the more you will pay in PMI premiums per year. This is because the longer your loan term, the more time you have to default on your mortgage, which increases the risk for the lender.

The Size of Your Loan

The size of your loan is also a factor in determining the cost of your PMI insurance. If you have a larger loan, you will generally pay more in PMI premiums per year than if you have a smaller loan.

For example, if you have a $300,000 loan and your PMI premiums are 0.5%, you will be paying $1,500 per year, or $125 per month, in PMI insurance.

FAQ

What is PMI insurance?

PMI insurance is a type of mortgage insurance that is required by lenders when a borrower is unable to provide a down payment of at least 20% of the home’s purchase price. PMI insurance protects the lender in case the borrower defaults on the mortgage.

How is PMI insurance calculated?

The amount of PMI insurance you will need to pay is based on a number of factors, including the size of your down payment, the type of mortgage you have, and the size of your loan.

What is the range of PMI premiums?

Typically, PMI premiums will range from 0.3% to 1.5% of the total loan amount per year. For example, if you have a $200,000 loan and your PMI premiums are 1%, you will be paying $2,000 per year, or $167 per month, in PMI insurance.

How long do I need to pay PMI insurance?

Typically, PMI insurance is required until you reach a certain amount of equity in your home. This usually occurs when you have paid off 20% of your home’s purchase price.

Can I avoid PMI insurance?

You can avoid PMI insurance by providing a down payment of at least 20% of the home’s purchase price. You can also choose to take out a piggyback mortgage, which involves taking out a second mortgage that covers the remaining balance of your down payment. However, piggyback mortgages generally come with higher interest rates.

Conclusion

Calculating PMI insurance can seem like a daunting task, but it is an important part of the home-buying process. By understanding how PMI insurance is calculated and what factors are involved, you can make informed decisions about your mortgage and ensure that you are getting the best possible deal.