How do I pay for my mortgage insurance?
If you’re like most borrowers, your MI premium is included as a portion of your total monthly mortgage payment, and the lender or servicer will pay your MI premium from the escrow account they manage for you. That said, there can be other premium payment plans and policy options which may be available to you; we discuss these below.
How are mortgage insurance costs determined?
How much you'll pay for mortgage insurance depends upon several factors:
- Your credit score
- Your Debt-to-Income (DTI) Ratio
- Size of your down payment
- Your loan term
- Your loan type (fixed or adjustable)
- Loan size
- Level of coverage the lender requires may depend on your kind of loan and borrower profile
Fixed-rate mortgages have the lowest costs, while adjustable-rate mortgages have the highest, since rising rates might crimp your ability to make payments later on, thus increasing the possibility of default.
If the loan is to be sold to Fannie Mae or Freddie Mac, there are minimum coverage standards required by the GSEs. If not, your lender may have choices for varying levels of coverage to reduce risk, and may be able to select less-costly coverage options if you're a particularly creditworthy borrower.
For example, the lender may choose coverage for only 20 percent of the loan amount rather than 30 percent -- but if the loan is to be sold, the final purchaser of the mortgage will dictate the coverage level required. You don't get to choose, and your lender may not, either.
What does my mortgage insurance cost?
That depends. As noted above, and like many mortgage-related things, your mortgage insurance premium is based upon several factors, including your credit score, the amount of your down payment as a percentage of the value of the home (LTV); your choice of mortgage product (fixed rate or adjustable rate – and how frequent the rate adjustment will be); the length of the term of your mortgage (15, 20, 25, 30 years), the amount of the mortgage and of course the level of coverage the investor requires for your kind of loan and borrower profile. Additionally, some insurers have different premiums depending upon premium refund policies, should the MI policy be canceled due to a refinance or sale of the home.
In the housing market downturn, mortgage insurers discovered that loans that had only a single borrower defaulted at a higher rate or caused higher incidence of loss. In response, PMI premiums have been discounted a little for loans where there are two or more borrowers responsible for making payments. That makes sense, as a household with two incomes may be more likely to continue to make mortgage payments even if one of the parties should become unemployed. The discounts are small but meaningful; for example, for a 30-year fixed-rate $300,000 home with a 10% down payment, the PMI cost for s single borrower would be $63 per month, but that cost falls to $47.25 when there are two or more borrowers.
In recent years, borrowers seeking conforming loans have generally been allowed to carry much more total debt than has traditionally been allowed. The Qualified Mortgage standard allows for total DTI up to 43% of a borrower's monthly gross income, but a "temporary exemption" until 2021 (possibly sooner) allows Fannie Mae and Freddie Mac to buy and back loans with higher DTIs, sometimes up to 50%. As borrowers with higher debts are more risky, PMI companies charge higher premiums to these borrowers. Using the example above, a single borrower with a DTI below 45% would pay $63 per month for PMI; with a DTI above 45%, the cost climbs to $78.75 per month.
Mortgage insurance calculators
As you now know, there are also several methods by which premiums can be paid. HSH.com has several calculators to help you see what your monthly premium cost for MI will be.
If you’re just curious about how much your PMI will cost each month, our simple mortgage insurance payment calculator will give you the answer you need.
If you are purchasing or refinancing a home and you know the mortgage amount and terms of your deal, our standard PMI calculator will give you a payment-by-payment breakout of principal, interest and MI costs – and you can print and save the results, too. Perhaps more important, it will tell you when your MI policy will come to an automatic cancellation point.
If you are scrimping and saving to put together funds for a down payment and closing costs, you should know that your MI costs go down as your down payment goes up. What you might not know is whether it’s worth it or not to wait and save more, beg mom and dad for a gift to get you into the next down payment bracket or whether you can move forward with the money you have.
Our Down Payment Decisioner calculator will show:
- Your loan’s monthly payment and MI costs with your existing down payment
- The change to your loan’s monthly payment and MI costs if you had a larger down payment
- Your loan’s monthly payment and MI costs with a smaller down payment
The calculator will help you allocate your hard-earned assets efficiently among your down payment, mortgage insurance needs and even your loan’s closing costs.