How Is Private Mortgage Insurance Calculated?

Written by Anytime EstimateFebruary 9th, 20224 minute read

If you're obtaining a conventional loan and borrowing more than 80 percent of the value of the property (i.e. 5%, 10%, 15% down payment), the lender will require mortgage insurance. The mortgage insurance gives the lender a cushion between the loan amount and the resale of the home in the event of a foreclosure. In other words, if the down payment is only 5%, and the home goes into foreclosure, the lender only has 5% equity. If the house sells for less than 95%, the lender loses money. If however, the down payment was 20%, the lender can sell the home for 20% less and still break even. Mortgage insurance fills the gap between a low down payment and 20% of the property value.

The private mortgage insurance calculation depends on a number of variables, including:

  • mortgage insurance plan
  • loan amount and term
  • market value of the home
  • credit score
  • coverage
  • premium adjustments

Monthly private mortgage insurance

The most common PMI plan is the borrower's monthly PMI premium. The following PMI chart illustrates the calculation variables for the borrower paid PMI cost.

Fixed-Rate 30-Year
BASE LTVCOVERAGELOAN'S REPRESENTATIVE CREDIT SCORE
760+720-759680-719620-679
97% to 95.01%35%1.05%1.10%1.31%1.48%
30%90%94%1.14%1.31%
25%73%77%96%1.11%
18%57%60%80%94%
95% to 90.01%35%63%71%101%132%
30%54%62%89%115%
25%50%57%79%103%
18%45%51%69%80%
16%43%49%67%74%
90% to 85.01%30%49%54%64%83%
25%39%44%57%71%
17%33%38%44%56%
12%29%34%39%47%
85% and UNDER25%37%39%43%64%
17%30%32%38%53%
12%23%27%33%39%
6%21%25%29%33%


Along the left side of the chart is the loan-to-value. Loan-to-value is a simple calculation that determines the equity (or down payment) in the home. The calculation is simple for a purchase. Simply subtract the down payment number from 100 and you have the loan-to-value. For example, with a 5% down payment, 100 - 5 = 95%. For a 10% down payment, 100 - 10 = 90%. Another way to determine the loan-to-value is to divide the loan amount by the sales price (or appraised value). For example, if the sales price (or appraised value) is $100,000 and the mortgage amount is $95,000, the loan to value is 95% ($95,000/$100,000 = 95%)

Next, find the coverage line. Mortgage insurance coverage is the amount the mortgage insurance company will pay the lender in the event of a default on the loan. The payment is based on the outstanding balance multiplied by the coverage amount. For example, if the loan balance was $100,000 and the coverage was 30%, the mortgage insurance company would pay the lender $30,000.

35%, 30%, 25%, 18% or 16% are coverage options with a loan to value of 95% to 90.01%. As you can see, the monthly premium decreases as the coverage amount decreases. The typical coverage amount is highlighted.

After determining the loan-to-value and the coverage amount, you have to find the PMI percentage that intersects with the credit score at the top of the chart. Using the above example, a loan to value of 95% with 30% coverage and a credit score of 720 to 759 results in a monthly premium percentage of .62%.

Monthly PMI calculation

Now that you found the monthly PMI premium, you need to calculate the monthly cost. Staying with the previous example, the loan amount was $95,000 and the credit score is 720.

Loan amount$95,000
Monthly Premium Percentage0.62%
Annual Cost$589.00
Divide by 12 months = Monthly Cost$49.08


Annual mortgage insurance premium

Another mortgage insurance option is to have the borrower's annual premium paid once a year (every 12 months).

Single premium mortgage insurance

This mortgage insurance plan pays the entire cost of the mortgage insurance in one lump sum at settlement. The upfront cost is considerably higher than the other MI plans, however, this plan completely eliminates the cost of the mortgage insurance over the life of the mortgage. Borrowers can pay the entire sum at closing or finance the premium into the loan amount. A third party, such as a builder or a seller, can otherwise pay the premium.


Fixed-Rate 3-Year - REFUNDABLE
For loans with level payments for the first 5 years
BASE LTVCOVERAGELOAN'S REPRESENTATIVE CREDIT SCORE
760+720-759680-719620-679
97% to 95.01%35%3.89%4.22%5.28%N/A
30%3.50%3.84%4.80%N/A
25%3.12%3.41%4.18%N/A
18%2.59%2.83%3.70%N/A
95% to 90.01%35%3.26%3.65%5.09%6.58%
30%2.83%3.22%4.51%5.76%
25%2.64%2.98%4.03%5.18%
18%2.40%2.69%3.55%4.08%
16%2.30%2.59%3.46%3.79%
90% to 85.01%30%2.59%2.83%3.31%4.22%
25%2.11%2.35%2.98%3.65%
17%1.82%2.06%2.35%2.93%
12%1.63%1.87%2.11%2.50%
85% and UNDER25%2.02%2.11%2.3%3.31%
17%1.68%1.78%2.06%2.78%
12%1.34%1.54%1.82%2.11%
6%1.25%1.44%1.63%1.82%


The single premium plan is expensive, however, the cost can be paid by the seller, financed with the mortgage, or even paid by the lender.


Loan amount$95,000
Monthly Premium Percentage3.22%
Total Cost$3,059


The single premium plan is offered as "refundable" or non-refundable. The refundable plan means that if the mortgage is paid off within the 30-year term. A prorated refund will be paid to the borrower. The non-refundable premium is less expensive, however, no refund will be paid if the loan is closed out. "For loans with level payments for the first 5 years" means fixed-rate loans or adjustable-rate mortgages that have a fixed (same) interest rate for the first 5 years (60 months).

Split premium mortgage insurance

This mi program is a blend between the single plan and the monthly plan. There is a modest upfront charge and a reduced monthly premium. As with the single premium, the borrower is permitted to finance the upfront premium, or a third party can pay it. The monthly premium decreases as the upfront payment increases.


Fixed-Rate 30-Year - NON-REFUNDABLE - For loans with level payments for the first 5 years
UPFRONT .75%UPFRONT 1.00%UPFRONT 1.25%
BASE LTVCOVERAGELOAN'S REPRESENTATIVE CREDIT SCORE
720+680-719620-679720+680-719620-679720+680-719620-679
ANNUALIZED MONTHLY PREMIUM RATES
97% to 95.01%35%0.68%0.90%1.33%0.61%0.83%1.26%0.55%0.77%1.20%
30%0.60%0.80%1.15%0.53%0.73%1.08%0.47%0.67%1.02%
25%0.51%0.67%0.94%0.44%0.6%0.87%0.38%0.54%0.81%
18%0.39%0.57%0.7%0.32%0.5%0.63%0.26%0.44%0.57%
95% to 90.01%35%0.56%0.86%1.17%0.49%0.79%1.1%0.43%0.73%1.04%
30%0.47%0.74%1.00%0.40%0.67%0.93%0.34%0.61%0.87%
25%0.42%0.64%0.88%0.35%0.57%0.81%0.29%0.51%0.75%
18%0.36%0.54%0.65%0.29%0.47%0.58%0.23%0.41%0.52%
16%0.34%0.52%0.59%0.27%0.45%0.52%0.21%0.39%0.46%
90% to 85.01%30%0.39%0.49%0.68%0.32%0.42%0.61%0.26%0.36%0.55%
25%0.29%0.42%0.56%0.22%0.35%0.49%0.16%0.29%0.43%
17%0.23%0.29%0.41%0.16%0.22%0.34%0.10%0.16%0.28%
12%0.19%0.24%0.32%0.12%0.17%0.25%N/A%0.11%0.19%
85% and UNDER25%0.24%0.28%0.49%0.17%0.21%0.42%0.11%0.15%0.36%
17%0.17%0.23%0.38%0.1%0.16%0.31%0.04%0.10%0.25%
12%0.12%0.18%0.24%0.05%0.11%0.17%N/A%0.05%0.11%
6%0.10%0.14%0.18%0.03%0.07%0.11%N/A%N/A%0.05%


In addition to the payment plans, the mortgage insurance companies adjust the mortgage insurance rate for:

  • rate-and-term refinance
  • second homes
  • loan amounts greater than $510,400
  • employee relocation homes
  • investment properties