How Do You Calculate A Mortgage Insurance Premium?
Mortgage insurance protects the lender from losses if the borrower defaults on the mortgage. Lending programs under the Federal Housing Administration (FHA) often require mortgage insurance for the loan to be approved. The borrower pays the insurance premium, which protects the lender. The advantage of buying mortgage insurance is that the borrower can qualify for a loan with a lower down payment. Calculate the Loan to Value ratio (LTV). LTV = loan amount /total mortgage value, where loan amount = total value of mortgage — down payment on the property. If the mortgage value is $100,000 and the client makes a 10-percent down payment ($10,000), the loan value is $90,000. LTV ratio is equal to 90000/100000 or 0.9 or 90 percent. Determine the mortgage insurance rate. Rates are different for private mortgage insurance (PMI) and an FHA loan. In order to determine the correct insurance rate, contact the insurance provider. Generally, PMI insurance rates fall within the range of 0.5 to 1 perc
