How to Calculate the PMI on an FHA Loan

Home mortgages attract PMI payments if the value of the down payment made is less than 20% of the value of the home. This is the best way of protecting the lenders from the risk of dealing with high-risk clients. Some people are flight risks and will also have to be charged an extra amount for the sake of insuring the lenders from their flight risk. There are two types of PMI, monthly and single payment PMI.

To know just how much you owe the company in terms of PMI, you need to calculate this amount from the beginning. Usually, this value is 1.75% of the mortgage. This is simple mathematics, 1.75% of the value of a home that is worth $400,000 is $7000. You can choose to pay this in a single payment (to be subtracted from the value of down payment) or to pay it in small installments per month. If you do not want to pay for it every month, paying it in one installment is one way of dealing with your PMI. If your mortgage is to be paid within a period of 30 years and you have chosen to pay it in installments every month, you will divide the value of PMI with the number of months.

The value of your yearly PMI is 0.55% of the value of your mortgage. What you get from this calculation is divided by 12 to get the value of the monthly installments. If the value of the home you are buying is $400,000, the value of your yearly PMI is $2200. The value of the monthly installments will be $183.33.

When the value of your LTV drops to less than 75% or 80%, you do not need to pay PMI. So you need to keep this in mind. It is only when you have an LTV of more than 80%, and when your repayment period is more than 15 years that you have to pay this PMI. Ensure that you have calculated PMI every so often to justify the removal of PMI payments from your monthly payments. This will be very valuable when you have to repay your money. Get the attention of the lender company when you need PMI to be removed and an appraisal done on your property. Keep in mind that it is not always the case that the value of your property will have increased when you perform an appraisal. What is important is that you have paid off 20% of the value of the home when you are doing it.

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