Mortgage PMI Calculation

October 20, 2011 by  Filed under: Loans 

With PMI (private mortgage insurance) owning a home is becoming more and more expensive. However, it will be of an advantage to you if you do not have a lot of money in the form of down payment. To the lender, this one way of ensuring that the money he has given you will come back to him with interests. Those people who have bad credit ratings will pay more PMI and will have a hard time convincing their lenders to remove PMI from their monthly payments even when they have enough equity. Before gaining enough equity on your home, you will have to pay a lot more in terms of PMI on your home. You can calculate the amount of PMI you will be paying your lender so that you are aware of the equity you have on your home and can justify the removal of PMI at the right time.

The 20% you are supposed to pay as down payment is a lot of money on a home; whose work is to ensure that you always pay any debt to the lender. However, not everyone is able to pay 20% on their homes. For example, if you want to buy a home that is worth $200,000 at the moment, 20% will mean depositing $40,000 with the bank immediately. For an average income earner, this is a lot of money. Not everyone is able to pay that much of a down payment hence the need for PMI.

The amount you pay every month in the name of PMI depends on the value of the loan without the down payment. Some people will not pay down payment at all, so this means they will use the whole amount of the loan in calculation of their LTV. Those who have not paid will have an LTV of 100%. The PMI you will pay will be a percentage of the balance remaining before clearance of the loan. This depends on the bank, so let’s assume the rate will be 0.005 of the value of the remainder. So, if you have made a down payment of 5% on a house that costs $150,000, your PMI will be $142,500 multiplied by 0.005 which will mean that you will pay $712.5 every year in the name of PMI and $62.5 in the name of monthly premium. The factors that will come in to determine the amount of PMI you will pay includes the time frame and how good of a debtor you have been to the bank.

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