Private mortgage insurance (PMI) costs are an integral component of home affordability. PMI premiums may be paid either upfront at closing, monthly, or a combination thereof.
Knowing your estimated PMI costs based on your down payment size and credit score can be extremely useful. Use one of the calculators below to estimate these costs.
How to Calculate
Mortgage insurance enables buyers to make smaller down payments and build equity faster while mitigating lender risk of loan default by covering part of the loan amount in case a borrower defaults. Mortgage insurers like MGIC, Radian Essent National MI or United Guaranty typically charge as a percentage of loan amount and allow borrowers to compare rates with mortgage insurance rate cards from these providers.
Rates are expressed in percentage terms, while annual premiums can be estimated using Credit Karma’s calculator to estimate both your mortgage insurance rate and payment.
Mortgage insurance rates depend on various factors, such as loan-to-value (LTV) ratio, borrower credit score and down payment amount. To estimate an annual PMI rate, use a mortgage insurance rate card and locate the row that corresponds with your LTV ratio and column that matches with both credit score and down payment amount. Once this data is in hand, multiplying it by loan amount will give your monthly PMI rate.
Upfront Premium
Mortgage insurance costs borrowers money, but it helps them purchase homes sooner by mitigating financial institutions’ risk when offering mortgages with smaller down payments. You have two payment options for mortgage insurance premiums: either make it part of your closing cost or add it onto the loan and pay monthly; in both instances interest will accrue on these costs, which adds further expenses to your loan agreement.
The upfront premium can range anywhere from 0.50% to 1.25% of your loan total, depending on various factors like credit scores and down payment size. The exact premium amount will be determined by your private mortgage insurer (MGIC, Radian Essent National MI and United Guaranty are among major providers), with their mortgage insurance rate card providing more information.
After you’ve calculated the precise PMI rate, divide it by the loan amount to calculate monthly PMI costs; multiply this result by 12 to find out your annual premium rate. To do this effectively, it is helpful to know your loan-to-value ratio; this information can be found either on loan documents or through an online calculator such as Credit Karma’s calculator.
Upfront PMI costs can quickly deplete savings accounts if they’re substantial, while it only makes financial sense if you plan to own the home for enough years for it to make up its expenses. A job loss or other financial emergency might force you out sooner than anticipated before this expense has been covered back by selling.
Monthly mortgage insurance means a higher monthly payment, but more cash in your budget for expenses such as property taxes, homeowners’ insurance and any repairs. Plus you’ll have more funds set aside towards meeting other financial goals like building retirement or emergency savings funds. Unfortunately if this option is chosen you cannot write off upfront premium costs as an itemized deduction come tax time.
Monthly Premium
Mortgage insurance premiums on conventional loans, more commonly referred to as private mortgage insurance (PMI), can either be paid upfront or included as part of your monthly mortgage payment. How much PMI premiums you owe depends upon several factors including credit score, loan-to-value ratio and down payment size – with higher credit scores and larger down payments decreasing risk and thus your PMI payments.
FHA loans differ slightly in their mortgage insurance premiums; they come in two forms – an upfront Mortgage Insurance Premiums that must be paid in one lump sum or rolled into the loan, and an annual PMI that’s charged each month. The upfront MIP currently stands at 1.75% of base loan amount while annual PMI can vary depending on loan amount, loan-to-value ratio and term length – these costs can also change monthly.
Some lenders require borrowers to maintain mortgage loan PMI even after the loan-to-value has fallen below 80%, even after evidence shows they no longer pose high risks of default. Borrowers who wish to opt out must show they have built sufficient equity in their homes, or else continue paying this monthly cost until such time as proof can be provided that this requirement no longer applies.
At closing, your lender will provide you with your Loan Estimate and Closing Disclosure which details PMI costs as part of Projected Payments section of Loan Estimate and Closing Disclosure document. In addition, you can ask them directly or use this Mortgage Insurance Calculator to estimate costs for various scenarios or loan amounts.
No matter if it’s an upfront premium or split premium arrangement, or monthly PMI payments – add all costs related to them into your budget. Depending on the type of mortgage loan, if possible make a 20% down payment or more and avoid PMI altogether; or choose a shorter loan term which will reduce monthly mortgage payments while increasing overall costs.
Annual Premium
A premium is the amount you pay for insurance policies. People pay premiums for life, auto, homeowners and renters policies alike to help cover costs associated with greater protection and coverage that these policies provide. If payments fall behind on any type of policy they hold out against cancellation; either choosing annual upfront payment or monthly installment payments has advantages and disadvantages to consider when making this decision.
Find your annual mortgage insurance premium easily by consulting your lender’s rate card or using online calculators, including PMI calculators that estimate it. Identifying which PMI rate applies directly to you multiplied by loan amount will yield your monthly payment amount; be sure to take into account lender rules and regulations when doing this calculation.
Mortgage insurance is typically required on loans with less than 20% down, and can be cancelled once your equity reaches 80% of its value. Although mortgage insurance costs money, it enables you to become a homeowner sooner than waiting to save up enough for a 20% or greater down payment.
Many insurance companies now allow their customers to make monthly premium payments rather than all at once, which is convenient if your income fluctuates or you work seasonal jobs as it allows you to budget the premium into your monthly expenses. Unfortunately, however, this option may end up costing more as installment fees will typically apply because manual processing takes more time on their end.
