How to Calculate the PMI on a Mortgage Loan

Purchasing a home is one of the best investments you can make. In most cases, getting a mortgage loan will mean that you will have to pay private mortgage insurance. PMI has been designed to remove the burden of high-risk clients from the lender. It is a means of helping the borrower to get a mortgage loan without having to put down 20% of the value of the home in down payment. In the event that you default on the payment of the loan, the bank can get payment through the insurance company. Most people have found themselves having to pay about $140 extra on average in their mortgage loan payments for cover PMI.

The calculation of your PMI will require that you are aware of the value of the home you are buying. This will be done by a professional appraiser, whose services will be requested by the bank itself. Assuming that it is worth $500000, this article will calculate the amount of PMI you will be paying on it. We are also assuming that you have not paid the 20% and you have attracted PMI on your monthly payments. If you have already paid a down payment of $50,000, you still have 90% of the value of the loan to go. Your LTV (loan to value) rate stands at 90%
The rate of PMI varies from lender to lender depending on their principles. You will have to check the PMI chart of your lender to determine what the rate is for someone whose LTV stands at 90%. Assuming that you will find that the rate is 0.25%, the yearly payment of the PMI will be the loan amount multiplied by the PMI rate. In other words, it will be 0.25% multiplied by $450,000. The value of the yearly payment of PMI will be $1125. The monthly payment will be this value divided by 12, which will give you approximately $94 of PMI payment every month.

The PMI on the mortgage loan will be $94. If the rate of the repayment of the loan was 5% for 30 years, it will mean that you will have to pay $1875 per month, plus taxes (1% of the value of the home) which is $416 per month and $94 PMI. The total you will have to pay will be $2385. Dropping the PMI, no matter how small a difference it will make will mean a lot in the long run.

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