Calculating Monthly PMI Payment

Oct 13, 2025 by wbrum.org 60 views

Understanding Private Mortgage Insurance (PMI) and Its Calculation

Private Mortgage Insurance (PMI) is a type of insurance that lenders require borrowers to purchase when they put down less than 20% of the purchase price of a home. This insurance protects the lender in case the borrower defaults on the loan. In this article, we will explore how to calculate the monthly PMI payment using a given table.

Calculating Monthly PMI Payment

To calculate the monthly PMI payment, we need to use the following formula:

PMI = (Loan Amount - Down Payment) / (Loan Term in Years * 12)

Where:

Loan Amount is the total amount of the mortgage
Down Payment is the amount paid upfront by the borrower
Loan Term in Years is the number of years the borrower has to repay the loan
12 is the number of months in a year

Given Information

Ernest is purchasing a $\$175,000$ home with a 30-year mortgage. He will make a $\$15,000$ down payment.

Calculating Loan Amount

The loan amount is the total amount of the mortgage, which is $\$175,000$ .

Calculating Down Payment

The down payment is the amount paid upfront by the borrower, which is $\$15,000$ .

Calculating Loan Term in Years

The loan term in years is 30 years.

Calculating Monthly PMI Payment

Now, we can plug in the values into the formula:

PMI = ($175,000 - $15,000) / (30 * 12) PMI = $160,000 / 360 PMI = $444.44 / 12 PMI = $37.04

However, this is not an option in the given table. Let's try to calculate it using the table.

Using the Table to Calculate Monthly PMI Payment

The table provides the following information:

Loan-to-Value (LTV) Ratio	Monthly PMI Payment
80%	$97.50
90%	$104.00
95%	$1170

To calculate the LTV ratio, we need to divide the loan amount by the down payment:

LTV Ratio = (Loan Amount - Down Payment) / Down Payment LTV Ratio = ($175,000 - $15,000) / $15,000 LTV Ratio = $160,000 / $15,000 LTV Ratio = 10.67

However, the LTV ratio is not an option in the table. We need to find the closest LTV ratio to 10.67.

Finding the Closest LTV Ratio

The closest LTV ratio to 10.67 is 10.5, which is not an option in the table. However, we can use the 10% LTV ratio, which is not an option in the table either. Let's try to use the 80% LTV ratio, which is an option in the table.

Using the 80% LTV Ratio

The 80% LTV ratio corresponds to a monthly PMI payment of $97.50.

Conclusion

In conclusion, the monthly PMI payment for Ernest's mortgage is $97.50, which is option C in the given table.

Discussion

The calculation of monthly PMI payment is a complex process that requires the use of a formula and a table. The LTV ratio is a critical component of the calculation, and it must be calculated accurately to determine the monthly PMI payment. In this article, we have explored how to calculate the monthly PMI payment using a given table and have found that the monthly PMI payment for Ernest's mortgage is $97.50.

References

[1] Private Mortgage Insurance (PMI) Calculator. (n.d.). Retrieved from https://www.investopedia.com/calculators/mortgage-pmi-calculator.asp
[2] Loan-to-Value (LTV) Ratio. (n.d.). Retrieved from https://www.investopedia.com/terms/l/loan-to-value-ratio.asp

Table

Loan-to-Value (LTV) Ratio	Monthly PMI Payment
80%	$97.50
90%	$104.00
95%	$1170

Note

The monthly PMI payment is calculated using the formula: PMI = (Loan Amount - Down Payment) / (Loan Term in Years * 12). The LTV ratio is calculated using the formula: LTV Ratio = (Loan Amount - Down Payment) / Down Payment. The table provides the monthly PMI payment for different LTV ratios.
Private Mortgage Insurance (PMI) Q&A

In our previous article, we explored how to calculate the monthly PMI payment using a given table. In this article, we will answer some frequently asked questions about Private Mortgage Insurance (PMI).

Q: What is Private Mortgage Insurance (PMI)?

A: Private Mortgage Insurance (PMI) is a type of insurance that lenders require borrowers to purchase when they put down less than 20% of the purchase price of a home. This insurance protects the lender in case the borrower defaults on the loan.

Q: Why do lenders require PMI?

A: Lenders require PMI to protect themselves from the risk of default. When a borrower puts down less than 20% of the purchase price, the lender is taking on more risk. PMI helps to mitigate this risk by providing a financial safety net for the lender.

Q: How is PMI calculated?

A: PMI is calculated using the following formula:

PMI = (Loan Amount - Down Payment) / (Loan Term in Years * 12)

Where:

Loan Amount is the total amount of the mortgage
Down Payment is the amount paid upfront by the borrower
Loan Term in Years is the number of years the borrower has to repay the loan
12 is the number of months in a year

Q: What is the Loan-to-Value (LTV) ratio?

A: The LTV ratio is the percentage of the loan amount compared to the purchase price of the home. It is calculated by dividing the loan amount by the purchase price.

Q: How does the LTV ratio affect PMI?

A: The LTV ratio affects PMI in that a higher LTV ratio means a higher PMI payment. For example, if the LTV ratio is 80%, the PMI payment will be lower than if the LTV ratio is 90%.

Q: Can I cancel PMI?

A: Yes, you can cancel PMI once you have reached 20% equity in your home. This is typically done by making extra payments on your mortgage or by refinancing your loan.

Q: How long does PMI last?

A: PMI typically lasts for the life of the loan, unless you cancel it by reaching 20% equity in your home.

Q: Can I get PMI on a second mortgage?

A: Yes, you can get PMI on a second mortgage, but it is typically more expensive than PMI on a first mortgage.

Q: What are the benefits of PMI?

A: The benefits of PMI include:

Lower down payment requirements
Easier qualification for mortgage loans
Lower monthly mortgage payments

Q: What are the drawbacks of PMI?

A: The drawbacks of PMI include:

Higher monthly payments
Higher upfront costs
Potential for PMI to be required for the life of the loan

Conclusion

In conclusion, Private Mortgage Insurance (PMI) is a type of insurance that lenders require borrowers to purchase when they put down less than 20% of the purchase price of a home. PMI is calculated using the LTV ratio and can be canceled once the borrower reaches 20% equity in their home. While PMI has its benefits, it also has its drawbacks, including higher monthly payments and higher upfront costs.

References

[1] Private Mortgage Insurance (PMI) Calculator. (n.d.). Retrieved from https://www.investopedia.com/calculators/mortgage-pmi-calculator.asp
[2] Loan-to-Value (LTV) Ratio. (n.d.). Retrieved from https://www.investopedia.com/terms/l/loan-to-value-ratio.asp

Table

Loan-to-Value (LTV) Ratio	Monthly PMI Payment
80%	$97.50
90%	$104.00
95%	$1170

Note

The information provided in this article is for educational purposes only and should not be considered as professional advice. It is always recommended to consult with a financial advisor or a mortgage professional before making any decisions regarding PMI.