PMI stands for "private mortgage insurance." Real estate mortgage companies usually demand that borrowers take out PMI if they pay less than 20 percent of the home's value as a down payment. The PMI lender will pay the mortgage lender if the borrower defaults on the loan. You can calculate PMI with a calculator or by using a formula. The PMI formula is actually simpler than a fixed-rate mortgage formula.
Find out the loan-to-value, or LTV, ratio of your house. The "L" is the amount of money you are borrowing versus the "V," or the value of your home. For example, if your home is worth $500,000 and you only put down $50,000, then you owe the mortgage company $450,000. Find the LTV ratio by dividing the loan amount by the home's value. Then multiply the answer by 100. 450,000 / 500,000 = 0.9 0.9 X 100 = 90 percent LTV
Look at the lender's PMI table. Lenders figure out how much PMI you need to pay by consulting the chart. For example, an LTV of 90 percent may warrant a PMI of 0.0075 percent.
Multiply your mortgage loan by your specific PMI rate according to the lender's chart. For example: 450,000 x 0.0075 = $3,375 You would owe $3,375 a year for the PMI.
Divide the yearly PMI amount by 12 to find out your monthly PMI amount. For example: $3,375 / 12 = $281.25 per month
Things You Will Need
- Each PMI lender has a chart that details the PMI rate.
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