How to Calculate PMI. Private Mortgage Insurance (PMI) Prices. LPMI comparison for loans in PA. PMI Expense. PMI, LPMI Removal
Private Mortgage Insurance ( PMI ) is an insurance that protects the lender if a borrower defaults on their loan. This insurance helps a lender to make loans over 80% LTV. If a borrower defaults on their mortgage, the average amount recovered by the bank after foreclosure, due to costs, is 80% of the value of the home. The PMI protects the bank by covering what they could loose in a worst case scenario. Before PMI, 20% down was needed. PMI is temporary until the borrower’s equity reached 80%. However, there might be minimum amounts due, perhaps 5 years.
In recent times PMI has become more costly. These rates are current as of 2/10/09. The last change was 11/17/08.
There are 2 alternatives to paying BPMI (regular Borrower Paid Mortgage Insurance):
- LPMI
- Piggyback 2nd mortgage (harder to get anymore).
Calculate a PA BPMI/PMI Monthly Premium:
The maximum PMI price for a 30 year fixed rate mortgage (using latest updated/increased PMI rates) :
- 80.01 to 85% LTV: Loan Amount (LA) x 0.0038 / 12
- 85.01 to 90% LTV: LA x .0062 / 12
- 90.01 to 95% LTV: LA x .0094 / 12
- 95 to 97% LTV: LA x .009 /12
- PMI factor is the number you multiply by the loan amount (.0038, .0062, etc.)
- Adjustments to PMI factor:
- 5-25 year loan: -.11
- Cash out refinance +.20
- Loan amount over $417,000 +.25%
- Rate and Term refinance +.10%
- Second Home .14%
Calculate your LTV: loan amount or loan amount
sales price (purchase) appraised value (refinance)
Summary- Benefits of BPMI:
PMI is now tax deductible for those with adjusted gross income of less than $100,000. If you qualify for this deduction, PMI may be to your advantage, especially 80-85% LTV loans where the PMI is inexpensive. Please contact us at 610 326-2099 to work up a PMI comparison. PMI has been the best option for most borrowers with less than 20% down since 2008 because of the tax benefits and the mortgage loan guideline changes with 2nd mortgages.
Compare BPMI/PMI Cost to LPMI Fees:
The draw back of LPMI is its long term cost: We advise never to accept LPMI unless you are going to be moving or otherwise paying off the mortgage in the immediate future. The reasons: It can never be removed! PMI is only paid until you build some equity (20%) and then it goes away. LPMI is a higher rate you pay for the life of the loan. It may be tax deductible, but it will cost much more than the other 2 options over 30 years. Mortgage companies like it, because they make more money with the higher interest rate, but we rank it the worst option for those who plan on keeping the loan for more than a few years.
Here are current our LPMI fees.
PiggyBack 2nd mortgage:
These loans have gotten increasingly difficult to obtain.
How to calculate a blended interest rate
PMI Removal:
You may remove PMI by paying the principal down to 80% instead of waiting for it to occur naturally through amortization. If you want to remove the PMI through appreciation of the home, you typically must wait 2 years and have an appraisal done. (Consult your lender for their policies.)
*Consult a tax advisor for your specific situation and tax implications. Assumes average income with itemized deductions. Those with very high incomes may lose deductibility of mortgage interest. Meant for informational purposes only.
