In this short article I want to talk about how you can get a PMI insurance calculator. Of course after you get one, what can you use it for? Don’t worry- we’ll cover that and a few more issues involving this calculator and PMI insurance. Hopefully we will also talk a few of you into putting more money down on your home loan, and not wasting it with paying your lender’s insurance policy!
What Is PMI?
Let’s start off with the basics by explaining exactly what “PMI” is. PMI is an abbreviation for “Private Mortgage Insurance”. Now then, what is Private Mortgage Insurance? This is an insurance policy that will protect the lender if you default on your home loan.
For instance, if you stop making payments and your home goes into foreclosure, the lender will have the home sold at auction. Since foreclosures generally go for less than what the house is worth, they are expecting to recoup less than what you owe on the home.
This is where the Private Mortgage Insurance comes into play. Sine there was a policy on the home/loan, the insurance company will pay the difference that is owed to the lender to pay off your mortgage.
The funny part about this is that this is a policy that is really for the benefit of the lender, but you (the borrower) have the joy of paying for it. Generally speaking you are paying around $100 to $200 a month for this coverage that protects the mortgage company. Yay!
Why Do I Have To Have Private Mortgage Insurance?
Good question! The reason you have to have it is because you are borrowing too much on the home. The lender doesn’t want to get stuck with the loss after a foreclosure, so they are requiring you to buy a policy that protects them.
In general, a mortgage company does not want to lend more than 80% of the home’s value. To make this simple, let’s say that your home is appraised at $100,000. The most the lender wants you to borrow on this is $80,000. If you borrow more than $80,000 to buy the home, they are essentially punishing you for not putting enough of a down payment on the home.
The amount you are borrowing, compared to the actual value of the home, is called the Loan To Value Ratio (LTV). It’s easy to figure out because you just take the value of the home and divide it by the amount you borrowed.
For example, if you put $10,000 down on a home that is worth $100,000, your LTV Ratio is 90%. How did we get that? Simply do the math: $90,000 (the amount you are borrowing) divided by $100,000 (what the home is worth) = 90%. Easy!
If you are borrowing with a Loan To Value Ratio above 80%, you will get hit with the fun PMI!
So What Does A PMI Calculator Do?
It just makes things a little easier. This is a tool that will give you a good idea of how much PMI insurance is going to cost you every month.
You simply input the amount that the home is worth, the amount that you are borrowing, and the interest rate on the mortgage. The calculator will then estimate the monthly PMI costs for you. Remember that it’s just an estimate, but it’s pretty accurate.
Using the example we have walked through already, I used a calculator to figure out what borrowing too much is going to cost me every month. I gave the home a value of $100,000. I typed in that we are borrowing $90,000. I gave it a 30 year interest rate at 4.5% (not too bad). The calculator then told me that my monthly PMI will be around $40.50 a month. That’s not too bad, but then again good luck on finding a house that’s not in the hood for $100,000!
You can also use this to help you figure out how much you should really be putting down on the home. Seriously, you shouldn’t put yourself in the position of borrowing more than 80% of the home’s value.
How Do I Get A PMI Insurance Calculator?
I’m working on uploading one on this page right now. Sadly, I’m having a hard time getting it on my site!!
In the meantime, just Google search “PMI Calculator”. The first few results work great. You can use it to figure out how much your loan is going to cost you every month, including the Private Mortgage Insurance. You can also play around with various interest rates and down payments to see how that will effect you.