Question:

How to calculate private mortgage insurance (PMI)?

Answer:

To calculate private mortgage insurance (PMI), you first need the following information:

  • PMI rate chart (available from your lender)
  • Type of loan you want (fixed rate, ARM, etc.)
  • Amount of down payment you want to make
  • Total amount of the mortgage you wish to borrow
  • Payback period of the loan

Now that you have this information, follow the steps mentioned below to calculate PMI.

Steps to Calculate PMI

  • Calculate Loan to Value Ratio (LTV).

    LTV ratio is the percentage of loan you owe to the lender after down payment. You can calculate it by dividing the amount you owe after down payment by total value of the mortgage and expressing it as a percentage.

  • Use the PMI rate chart.

    On the PMI chart you will find a list of yearly insurance rates for different LTVs, loan types and payback periods. Note the value that corresponds to your loan. A sample chart can be found on the last page.

  • Use the yearly insurance rate.

    Multiply the insurance rate with the total mortgage amount (and NOT the amount you owe to the lender after down payment). This will give you the yearly PMI expense.

  • Convert the yearly rate into a monthly payment.

    Divide the yearly PMI expense you just calculated by 12. This will give you monthly PMI expense. You can take this figure and add it to your other monthly mortgage payments (loan payment, tax impounds, hazard insurance etc.), in order to calculate a total monthly mortgage payment.

**Please note that PMI is not required for LTV less than 80%

A Sample PMI Chart

LTV > 95% 90-95% 85-90% <85%
Fixed Rate 15yr 0.79% 0.55% 0.25% 0.19%
Fixed Rate 30yr 0.90% 0.78% 0.52% 0.31%
Buy down Loan 15yr n/a 0.76% 0.50% 0.22%
Buy down Loan 30yr n/a 0.88% 0.60% 0.32%
ARM 15yr n/a 0.81% 0.55% 0.26%
ARM 30yr n/a 0.91% 0.64% 0.36%
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