Mortgage insurance is an insurance that gives the financial protection to a lender if the borrowers default on home loans. It is commonly required when the Down Payment (DP) of a home is less than 20 percent of loan and monthly insurance premiums are added to buyers’ monthly payments. Can we calculate our monthly mortgage insurance premium? How to calculate and how much is mortgage insurance? You will the answers from the following information. 

Actually there are two kinds of method to estimate your monthly mortgage insurance. They are by calculating your mortgage insurance itself and by navigating other factors that relate to mortgage insurance. Well, let’s review one by one to get more understanding.

The steps of calculating amount of monthly mortgage insurance

Today, there is special software that provides an instant way to calculate monthly mortgage insurance. You can use this to estimate your monthly payment for your mortgage insurance. But, it’s easy enough to calculate it manually by following these steps:

  1. Find first the purchase price

If you are the beginner for looking a new home, you probably have an idea about the price, right? The selected price is that can be afforded to purchase by yourself. This purchase price then will help you to determine your LTV (Loan-to-Value) ratio.

  • Determine your LTV ratio.

LTV ratio will be the basic thing for the lender and insurer to estimate and to calculate sum of money you have paid and sum of money you can owe. The ratio is obtained by taking amount of money you’ve borrowed and then the lender divides it by your property/ home value. Higher LTV means higher mortgage insurance cost you must pay out. Here is the illustration: You take a loan on $225,000, for instance, and you have pay out 10 percent of loan for the Down Payment (10%x225,000 = 22,500). Because you have only paid 10 percent for the Down Payment and 90 percent is still remaining, your LTV ratio is 90 percent.

  • Determine your terms of loan.

Other factors like the length and type of loan can also affect your monthly mortgage insurance amount. A shorter loan requires lower mortgage insurance rates; and a 30-year-loan is the most favorite term of loan chosen by most borrowers.

  • Determine the rate of mortgage insurance.

Private Mortgage Insurance (PMI) varies in cost. It depends on sum of Down Payment and loan you take. It commonly ranges from 0,3 to 1,15 percent of loan per year. There is the easiest method to determine your rate. Just use a table provided on lender’s official website. Another method is by using a calculator online. Now so many calculator online are available and you can use one of them to estimate your mortgage insurance rate.

  • Let’s do the math.

You can calculate your mortgage insurance by yourself. First to do is determining your annual mortgage insurance. Just multiply the amount of loan by your mortgage insurance rate. Your loan is $225,000, for instance, and the rate of your mortgage insurance is 0,052/ 52%. Then, do the math: $225,000 x 52% = $1170. This is your annual mortgage insurance amount. Second, to determine monthly mortgage insurance payment, divide your annual mortgage insurance payment by 12 (total number of month in a year). This will be: $1170 : 12 = $97,50 per month. Last, add this monthly mortgage insurance payment to interest principal, insurance payment, and taxes to estimate the total of monthly house payment. 

If you want to try the second method (calculating mortgage insurance payments by navigating particular factors), please pay your attention on these important things:

  • Remember, your mortgage insurance will fall down if you increase the equity on your property or home. Please figure it out that the lender won’t cancel your mortgage insurance automatically until your equity touches at least 22%, based on the appraisal of home. If your equity has reached 20%, quick to cancel the insurance. Don’t wait for your lender canceling your insurance.
  • Your credit score will affect your mortgage insurance. The borrowers with lower credit scores may not have rate as good as those with higher credit scores.
  • Some lenders can waive mortgage insurance if the borrower says ‘agree’ about the higher interest rate. Many lenders will let you to pay out your mortgage without insurance if you do agreement on paying higher interest along loan’s life.

Understand to distinguish a prepaid and monthly insurance payment

Today there are many high-tech devices that can help and support us in doing so many things. Even just for calculating monthly mortgage insurance, now a lot of calculator online is available for making the estimation of mortgage insurance amount per month or per year. Such calculator is very useful, especially for calculating not only the mortgage insurance, but also for calculating other monthly expenses like insurance and taxes. The use of a mortgage calculator with insurance, for instance, simply requires several components related to insurance itself. The calculator can present the result in two versions: annually and monthly. In addition, a mortgage calculator can also presents your schedule of monthly payments, monthly payment breakdown, and many others.

A mortgage calculator is adjustable based on your needs and situations. Interestingly, it results accurate monthly payment estimation. In calculating mortgage insurance, there are some components needed to understand. These components include Down Payment, income taxes, interest rate, property taxes, HOA DUES, Private Mortgage Insurance (PMI), homeowners insurance, loan terms, and full report. Let’s check the review for each component.

Down Payment (DP)

Down Payment amount of money that is put toward a down payment on a house. Be sure that you still have money cash left after the down payment. Your cash can be used to cover house repairs or as emergency funds.

Interest Rate

Interest rate is a rate of interest after taking a property/ house loan. The amount of interest rate varies depending on loan you take.

Income Taxes

Income taxes are an annual tax taken by government from individual’s income. The income taxes include several local entities, state entities, and federal taxes (in U.S). The taxes vary depending on individual’s location and income.

Property Taxes

Property taxes become one of components included if you want to calculate your mortgage insurance payments. The value of property/ house represents the annual tax on a homeowner’s property and the property tax is based on house/ property value.

Homeowner Insurance

Homeowner insurance is also called hazard insurance. Most numbers of lender require the insurance to give them protection from damage that probably happens on your home or property. The insurance covers any varieties of event such as lightning, fire, vandalism, burglary, explosion, storm, and many more.  All types of homeowners’ insurance policy contain coverage of personal liability that protects from lawsuits and injuries that may occur on property.

Private Mortgage Insurance (PMI)

Mortgage insurance is needed by borrowers who just have paid the Down Payment less than 20% of home purchase price. It gives protection to the lenders from the risks of losses that may occur when the borrowers default on mortgage loan.

Loan Terms

Loan terms are the length of time you can choose to purchase your loan. Commonly, there are some options of loan terms, such as 20, 30, and 15 years. The terms are different from one lender to another. The loan terms also affect amount of interest rate, so it will also affect monthly insurance payment indirectly.

Full Report

Full Report shows the whole reports of payments annually, including mortgage payment breakdowns, table and chart of mortgage payment amortization, total payments, etc. amortization table and chart include the ability of viewing amortization per month or per year.

Mortgage insurance brings some benefits for the borrowers. The most beneficial thing is that you can buy a house just with less than 20 percent Down Payment. This helps so much, especially for you who have limited cash money. Additionally, it makes you possible to buy a more expensive house than you may be able to afford if 20% Down Payment is required. The lenders today offer a new policy which is called single premium policy in which this policy allows you as the borrower to do saving plan per month. The lender can calculate the break-event point. Such premium plan, of course, can save your dollars. Most lenders are also offering flexible premiums for the borrowers. You can select the best one that matches your needs and financial condition. The premiums are temporary. They can be cancelled if your home reaches at least 80% of its value. Well, this is the end of short information about a mortgage insurance and mortgage calculator with insurance. May this information is useful for you.