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Step 1
If you do not have a loan-to-value ratio of 80 percent or lower as a home buyer, you are faced with paying a mortgage insurance premium in addition to your standard mortgage payment of principle and interest. The amount of PMI will depend on a few factors.
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Step 2
Below is a list of factors that go into figuring out how much the PMI payment will be each month.
1) Loan-to-value ratio---mortgage amount/property value
2) Type of loan---conforming loan, jumbo loan, non-conforming or sub-prime
3) Term of the loan---30, 20, 15 years, for example -
Step 3
Let's take a look at the mortgage insurance premium rates for a conforming 30-year fixed loan.
LTV PMI Rate
80-85% .32%
85-90% .52%
90-95% .78%
95-97% .90% -
Step 4
If a home buyer pays $300,000 for a house and puts 5% down ($15,000) the amount mortgaged is $285,000, as long as all closing costs are paid up front. To simplify the example, let's assume the home appraisal came in at the purchase price of $300,000. The loan-to-value ratio in this example is 95% ($285,000/$300,000). The home buyer is taking out a 30-year fixed mortgage. So according to the above table, the PMI rate will be .78% of the loan amount.
Here is the calculation:
$285,000 x .0078 = $2,223 per year/12 = $185.25 per month
loan amount x PMI rate = cost of PMI for the year
