Can you explan private mortgage insurance and how it is calculated?

Answer 1

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Answer 2

Private Mortgage Insurance insures the bank for the portion of your mortgage that's over 80% of the value of the home. If your loan is 90% of the value of the home, they're covered for the extra 10%. In a foreclosure situation the banks rarely recover more than 80% of the value of the home, so this insurance lets them lend higher amounts on your home while still being protected from losses for the additional amount.
A few things go into figuring how much you'll pay. Firstly is the loan amount...all mortgage insurance is figured based on a factor or a percentage of your loan amount.
Your factor is determined by a couple of things.
1. Your credit score. (yes this comes up again)
2. The purpose of the loan (purchase, cash out, or no cash out refinance)
3. The type of program your mortgage is (adjustable, fixed rate or deferred interest)
4. The coverage requirements set by your lender (each lender requires a different amount of coverage for each type of mortgage they do.)
These affect the rate you'll pay PMI at, but typically they don't change the cost all that much from loan to loan.

Answer 3

Private mortgage insurance is required by the mortgage backed securities to whom lenders sell their loans when the borroer makes less than a 20% down payment.

This insurance is for the lender's protection in case of borrower default. If the loan goes through foreclosure the lender may file a claim to recover a portion of any loss incurred with the private mortgage insurance company.

Coverage calculations vary by loan product, loan to value and coverage. It is all risk based pricing. The higher the loan to value the more expensive the cost of the private mortgage insurance. Likewise the higher risk the loan type (think ARM versus fixed rate) the higher the cost to the borrower.

For example: 30 Year fixed rate loan at 95% loan to value with 25% coverage on a 100,000 loan would cost the borrower .71% (based upon the loan amount) resulting in a monthly PMI payment of $59.17 per month.

The same loan amount on a a 1 year ARM with a potential for negative amortization would cost .73% resulting in a monthly payment of $60.83 per month.

Answer 4

Private Mortgage Insurance (PMI) is an insurance you are obligated to pay when you have made two small of a down-payment or no down-payment at all. It is an additional insurance to the regular home insurance you have to pay too. PMI is for the lender's protection really....that is in case you go into foreclosure and lose the house, the lender gets their money back from the PMI....I think it is based upon the loan amount.

Answer 5

if you are purchasing a home and have PMI it does protect the lender in case of default. If you are currently buying a home and have to get PMI, I would suggest you ask your mortgage consultant you are working with about lender paid mortgage insurace. Your rate is slightly higher, but you do not pay the private mortgage insurace the lender does, this means when values go back up the lender will probaly want to get you out of PMI as quick as possible, YOu will also find that by doing lender paid MI your payments will be less each month then with the PMI

Answer 6

Mortgage insurance through a bank means the money if paid goes to the bank, private mortgage insurance means you insure the mortgage yourself and if paid out the money goes to you. They are both calculated according to the amount or size of the mortgage. All mortgage insurance company's charge at different rates so shop around for the best deal.The purpose of mortgage insurance is to make the mortgage payments for you should you become incapable through sickness or injury.

Answer 7

Depends what kind of insurance you mean. Basically there are three types that are linked to mortgages.

1 Life insurance. This can be either endowment or reducing term and is intended to repay the mortgage ion the event of your death. The endowment invests a portion of your premium and all you pay off the mortgage is interest in the hope that the policy will produce sufficient to repay it on maturity. Reducing Term is where the amount of life cover reduces as you pay the mortgage off and in the event of death pays off the balance.

2 Fire Insurance. This is where the mortgaged property is insured against fire risks in an amount sufficient to clear the land and rebuild a similarly valued house in the event of a fire.

3 Payment Protection Insurance. This is where you pay a monthly premium to cover your payments in the event of sickness or redundancy.

The calculation of premiums is dependant on various factors. The Life Insurance depends on amount insured, age, health and lifestyle and existing medical conditions. It is also increaseed if you smoke or consume too much alcohol or if you have a dangerous occupation. When I used to sell life insurance we calculated that for every cigarette that you smoke you lose around 6 minutes of life expectancy. So if you smoke ten a day you lose an hour's life a day or 1 year in every 24. This is pro rata so a 20 a day person losed two years in 24. Because smokers die earlier the premiums are increased to cover the insurance company's early expected payout.

Fire insurance depends on risk and the area you live in. In poorer areas there is more liklihood of vandalism or artson and also they consider floods.

Payment protection depends on how long you have been in your job and how secure it is together with health considerations.

Answer 8

There's different calsulations, but mostly loan amount. If you are buying a home, ask your mtg. broker if the seller can give you a credit for the mtg ins. this will give a better rate, and you will not have to worry about it for a while.

Answer 9

Great question, hope people can give some insightful answers

Answer 10

It depends on many things