How to Calculate Private Mortgage Insurance

private mortgagesCalculating private mortgage insurance isn’t nearly as hard as you might think – but it will take a little time to figure out. If you don’t already know, you pay PMI to protect the lender in the case that you default; if you didn’t know, this doesn’t pay you any benefit. You’re basically paying their insurance and hedging your bets against yourself. If you’re paying less than 20% down when you buy a home, you have to have mortgage insurance – there are a few cases where this won’t apply to you, but it’s extremely rare.  Before you buy a home, know how much you’re going to pay!

What’s the Purchase Price?

The first thing you need to figure out is how much the purchase price will be. If you’re not sure which home you’re buying just yet, we’ll go with $250,000 for the sake of easy math. Now that you know what the purchase price is, you’ll be able to figure out the next step in the chain: the loan to value ratio.

What is your Loan to Value Ratio?

Figuring out your loan to value ratio is so important – everyone has a different amount. If you’re borrowing against the equity in a home you already own, like a second mortgage or home equity line of credit, you’re going to see all kinds of LTV ratios. You want the highest LTV available, and for this you’ll want to work with us as your Canada mortgage broker. We’ll be able to help you figure out just how much you can save over the life of your loan. For the sake of easy math, we’re going to go with 90%.

What is Your Loan Term?

If you have a short term mortgage, you’re going to pay more in monthly payments and PMI but you will pay it off faster. If you have a longer loan term you’ll pay less each month to your mortgage and PMI but it’ll be drawn out over time. We’re going to say you have a 25 year term mortgage.

What is your MIR?

Your MIR or Mortgage Insurance Rate is determined by a formula table. We’re just going to guess that you have a .52% rate.

Now it’s time to do the math.

Once you’ve done all this research and figured out all your numbers, it’s time to get to work! You’re going to need to multiple and divide a few things to figure out how much you have to pay.

Let’s first determine how much you’ll pay per annum or year:

$250,000 x .0052 = $1300

Now divide this number by 12 to get your monthly private mortgage insurance:

$1300 / 12 = $108.33

Now you’ll add this along with your projected monthly payment and you know about how much you’ll be paying. Once you reach 80% owed, you’ll be able to stop paying PMI and move on to paying your house down. Give us a call today and see what we can do for you.