This **PMI calculator** estimates your monthly private mortgage insurance and your monthly loan payment consisting of principal plus interest, based on LTV ratio. More on how to calculate your monthly total out of pocket you can read below the form.

## What is private mortgage insurance?

Private mortgage insurance (PMI) is designed to protect a lender in case of a default on the loan. It is generally required by the creditor in case the borrower has less than 20% down payment percent from the home price, which means it is mandatory when the loan amount divided by the property value is greater than 80.00%.

Our *PMI calculator* takes account of the LTV ratio explained below.

## Who pays for private mortgage insurance?

In addition to the principal and interest monthly payments that are made for the loan, the debtor has to pay on a monthly basis the PMI too, which is then transferred by the lender to the mortgage insurance company.

## How to calculate PMI?

- Step 1: First of all you should know the purchase price of the home you are about to buy and the down payment value, then establish the amount of money you need to borrow.

- Step 2: Find the loan to value ratio (LTV). This indicator can be found by dividing the loan amount borrowed by the property price. This is a very significant figure the lenders take account of when establishing the monthly PMI required. Needless to say that the higher the LTV ratio is, the higher the monthly cost of your insurance will be. For instance let’s assume that your home value is $300,000 and the loan amount borrowed is $250,000. That means the LTV ratio is 0.83 (83%) which is equivalent of a down payment of $50,000.

- Step 3: establish the term to pay off your debt. Here you should know that it has an impact on the private mortgage insurance amount you will pay. You have two options which take account of your affordability: paying for a shorter number of years but with higher monthly payments, or paying for a longer no. of years with smaller regular payments. Coming back to private mortgage insurance, the term influences the level of your payments. The shorter the term is the better because your insurance cost will go down as well.

- Step 4: find out the PMI rate from your lender. Most used mortgage insurance percentage varies between 0.0030(0.3%) and 0.0115 (1.15%).

- Step 5: you can either make the calculation by yourself or by using our
*PMI calculator*that applies the following formula:

**(Mortgage insurance rate) multiplied by (Loan Amount) divided by 12.**

Example:

Loan amount: $300,000

Mortgage insurance rate: 0.005

Outputs:

Annual mortgage insurance of: 300,000*0.005= $1,500

Monthly mortgage insurance of: 300,000*0.005/12=$125

21 Dec, 2014 | 0 comments
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