example 1: calculate pmi cost with pmi rate
Assuming you want to buy a home for $100,000 and can afford a down payment of $12,000, you can calculate your PMI amount as follows:
Reading: How do you calculate pmi insurance
Step 1: Determine your loan-to-value ratio.
means you have 88% of the house amount left to pay.
Step 2: Multiply the mortgage loan amount by your specific pmi rate according to the lender’s table. You can look up the PMI rate or ask your lender directly. let’s assume your ltv of 88% corresponds to a pmi of 1.2%.
pmi = $88,000 * 1.2/100
pmi = $88,000 * 0.0120 = $1,056
You will owe an annual pmi of $1056.
Step 3: Divide the annual pmi by 12 to find the monthly pmi amount.
monthly pmi = $1,056 / 12
monthly pmi = $88
example 2: how credit score, ltv and adjustments can affect the cost of pmi
Two friends, Clyde and Trent, each want to buy houses valued at $500,000 and $200,000, respectively. Clyde is buying the house as her second home and can make a down payment of 5% of the purchase price. while trent buys the house as an investment and can put down a 10% down payment.
- we can assume that trent will get a better pmi rate deal than clyde based on his down payments or ltv ratio.
but if clyde has a fico credit score of 720 and trent has a credit score of 630, your pmi can differ significantly depending on how the mortgage insurer sets the policy price.
Let’s consider that the mortgage insurer is the hypothetical omniinsurance.
omninsure has an internal mortgage insurance policy pricing system that is calculated based on ltv, fico score, and individual adjustments if a loan exceeds $400,000. the chart below provides their pmi rates.
omninsure’s pmi table
Now, let’s see what your pmi rates will be:
clyde makes a down payment of 5% of $500,000
fico credit score = 720
so according to the graph, clyde falls in the fourth column (700 – 759 credit score) and in the second row (95.01% – 97% ltv). which lines up its pmi rate at 0.75%.
but since you’re taking out a loan of more than $400,000, you’re qualified to make adjustments that could increase or decrease your pmi. therefore, the lender will add any applicable adjustments.
Based on the chart, Omninsure believes that people with good credit who buy a second home are unlikely to default on their loans. therefore, the adjustment is -0.10% of any loan over $400,000.
pmi = 0.75% + (-0.10%) = 0.65%
so clyde’s pmi rate is 0.65%
You can input the data into the pmi calculator to get clyde’s annual and monthly pmi.
on the other hand, trent has an ltv rate of 90% with a credit rating of 630. that puts you in the 2nd column (credit scores 620 – 659) and 3rd row (ltv of 90.01% – 95%). and since your loan amount doesn’t qualify you for any adjustments, your pmi is 1.5%, which is about 3 times the clyde pmi rate despite making a higher percentage down payment.