How to Figure a Mortgage Insurance Premium

You can figure the monthly insurance premium you will have to pay on your new mortgage if you lack a 20 percent down payment.

Many first-time home buyers do not have the standard 20 percent down payment and are faced with paying private mortgage insurance, usually referred to as PMI. You can figure out the amount of private mortgage insurance you will pay if they do not have a loan-to-value (LTV) of 80 percent or better.

Instructions

1. If you do not have at least a 20 percent down payment as a home buyer, you are generally 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.

2. A list of factors go into figuring out how much the PMI payment will be each month, including the loan-to-value ratio, or the mortgage amount/property value; the type of loan -- conforming loan, jumbo loan, nonconforming or sub-prime; the term of the loan -- 30, 20, 15 years, for example; and your credit rating.

3. Let's take a look at some hypothetical 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%

4. If a home buyer pays $300,000 for a house and puts 5 percent 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 percent ($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 percent 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

Resources

• Genworth Financial: Sample Mortgage Insurance Premium Tables