Mike Leyden

Mortgage insurance (MI) is to protect the lender, not the borrower.  The borrower pays for coverage that benefits the lender.  Private mortgage insurance is different from FHA mortgage insurance.

Lenders require this coverage for loans which have a loan-to-value over 80%.  It can be paid for in two ways, either monthly or upfront.  Paying monthly is more typical.

Radian rates (use BPMI prime rates)

MGIC rate cards (use borrower-paid monthly premiums)

Genworth Financial rate cards

Example

Here is an example of how to calculate a monthly mortgage insurance premium amount.

Assume the following:

• purchase loan
• 30 year fixed conforming loan
• $200,000 loan amount
• $215,000 appraised value
• 93% LTV
• 760 credit score
• standard agency coverage (this is the line highlighted in yellow, 30% in this example)

Using the Radian ratesheet (the one revised on July 11th 2011) see that the mortgage insurance premium is 0.67% of the loan amount per year.

For a $200,000 loan this means the annual premium due is $1,340.  Since the premium is paid monthly, divide the annual amount by 12.  Continuing with this example, the monthly mortgage insurance premium amount due is $111.67.

This $111.67 is added to the principal and interest due as well as the monthly amount of property taxes and homeowner’s insurance.

Typically, the premium is fixed so the premium will not decrease as the loan balance decreases. You can get a policy that will be figured on the decreasing balance but, the catch is, you pay a higher rate.

A higher rate on a lower amount often means paying more than if you had a lower fixed rate.

Removal/Cancellation

Mortgage insurance must be removed when the loan is paid down to 78% of the purchase price or the appraised value of the home at the time the loan was made, whichever is lower.  This cancellation policy is per the Homeowners Protection Act of 1998.

A borrower can request that mortgage insurance be removed when the loan balance is paid down to 80% of the purchase price or original appraised value.

Understand that the current value is not relevant, it is the purchase price or appraised value at the time the loan is made that matters.  Appreciation alone will not cause a lender to remove mortgage insurance.

Federal Trade Commission Consumer Alert regarding cancellation of private mortgage insurance.

Federal Reserve Bank of San Francisco page regarding private mortgage insurance.