How to Calculate PMI Mortgage Insurance for a FHA Loan?

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As a matter of fact, premium to be paid as part of mortgage insurance, on loans catered to by Federal Housing Administration, or FHA is substantially higher than those provided by as part of a conventional transaction. While, the premium happens to be 1.50% of the sales price; renewal premium to be paid subsequently is .500%. In the event of defaulting; the premium seeks to protect the interest of lenders. The department catering to housing & metropolitan development in United States- charges premium to the tune of 2.25%. Charged on the entire loan amount; it is to be paid on a monthly basis until 20%of the equity is achieved. For calculation of the average outstanding balance; the following point may come in handy.

  • The amount availed of as loan is to be multiplied by its rate of interest. The obtained amount should be rounded off as one whole number, without involving any decimal.
  • The whole number obtained should be divided by 1,200
  • Number obtained by way of division should then be added to the amount taken as loan
  • Now you can obtain the outstanding balance, if you deduct the monthly principle in addition to its interest from the amount arrived at previously in point 3.
  • Next you ought to repeat the mentioned process taking the amount arrived at as outstanding balance. You have to keep repeating the calculation for the entire phase of eleven months.
  • Keep adding the left over outstanding balance of every month to the amount availed of initially as loan. This will help you to arrive at the yearly figure of outstanding balance.
  • If you divide the obtained figure by twelve you can settle on the average amount.

For calculating the monthly ‘private mortgage insurance’; you have to

  • Have the figure obtained as average amount divided by.005
  • Then have the total arrived at in point 1 divided by 1.0225
  • Yearly PMI arrived at in point 2 should be divided by 12 to arrive at the charge of monthly PMI


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