How PMI Is Calculated – New PMI Rates

There are currently five options for structuring PMI on a mortgage loan, and frankly, that number is on the rise.  “PMI” is actually Private Mortgage Insurance.  It’s the insurance that’s charged on ANY mortgage loan where there’s less than a 20% down payment made. Because of the number of ways that PMI is Calculated, and the WIDE variance in Current PMI Rates – it can be difficult to find information on PMI Rates.

How PMI is calculated, depends on the type of mortgage you are applying for, how long you intend to live in the house, and what kind of credit you have.  On a Government Backed Mortgage loan for instance, PMI is charged on ALL mortgage loans, no matter HOW much money you put down!

PMI really has no great benefit for the Home Buyer – except that it allows you to buy a house, without laying out all of that cash.  It’s what kept the Banks solvent for the past few years when so many homes went into foreclosure.

Because homes across the country are slowing beginning to rise in value year over year, it’s important to know which types of mortgage will allow you to “get out of PMI” – and which ones are going to stick with you until you sell your house, pay off the mortgage entirely, or refinance into a difference program.

PMI is the “term” for the type of mortgage insurance primarily combined with a Conventional Mortgage loan – meaning it’s for folks with “better” credit scores, some cash to put down on a home, and pretty good income.  With Congressional Law Changes in early 2014, the Government requires mortgage lenders to calculate “allowable” fees and charges differently.  These changes are part of what is called a “Qualified Mortgage”, and because they are in place, there are more options for PMI.

How PMI Is Calculated

Private Mortgage Insurance (PMI) is a “supplemental insurance policy” – READ:  it is NOT death insurance, meaning it’s not going to pay your mortgage off if you or another person on the mortgage dies.  It’s truly in place to give the Bank roughly 25% of the mortgage, in the event you default (go into foreclosure).

PMI is provided by private (non-government) companies and is usually required when your loan-to-value (LTV) ratio — the amount of your mortgage loan divided by the value of your home — is greater than 80 percent.  There are some cases where PMI is required even if you have a 75% LTV, but those are generally cases where there’s Investment Property involved, or a greater risk factor for the Bank.

• Borrower Paid PMI (BPMI): There’s a form ofBPMI that has NO upfront fee to pay.  So you have no upfront premium, and you make a monthly payment. The Homeowners Protection Act of 1998 requires the lender to automatically cancel PMI coverage when the principal balance of the loan is first scheduled to reach 78% of the original value of the property. Because there are no upfront premiums due at closing, the fees are not calculated in the Qualified Mortgage ratios, making it easier for some lenders to qualify you. Depending on your household Income (and changes that threaten to take place each tax year) you MIGHT be able to “write off” your PMI with this type of mortgage.
  • The PMI Rate for BPMI for MOST Lenders (**READ THIS DISCLOSURE: this is going to vary based upon your credit, the type of property, loan type – etc… that’s why you don’t see charts quoting PMI Rates) on a 95% LTV for a $100,000 sales price, the factor is .62 – meaning on a $95,000 loan it would be $49.08 a month added to your mortgage payment.  If you put 10% down on a $100,000 sales price, and borrowed $90,000 then it’s a PMI factor of .44 and that’s $34.83 a month added to your monthly payment for PMI.  We are doing this analysis (today) based upon a minimum credit score of 740 – rates for higher or lower scores will result in different PMI Rates, and are subject to change.
    

• Lender Paid PMI (LPMI):  This kind of Mortgage Insurance (only available on Conventional Loans) is paid by the lender.  No Upfront fees are charged, and the mortgage insurance cost is not calculated into the Qualified Mortgage 3% cap on points and fees for borrowers. The cost of the PMI coverage is built into the mortgage rate, resulting in a slightly higher interest rate for the borrower.  Because the Mortgage Insurance is actually being paid in with your “interest rate” there’s no way to cancel it – however, every dime you pay for interest on this is currently tax-deductible.
  • The PMI Rate for LPMI (read the disclosure above about how this is just to give you some ballpark numbers, and it probably will be different /could change based on a bunch of stuff… blah, blah, blah) on our $100,000 house with 5% down (or a 95% LTV) is 1.75 to as much as 2.1.  At the lowest rate, that’s $1650 that the Lender has to pay, so you are LIKELY going to be paying .25% of interest HIGHER if you have LPMI.  On a 90% LTV loan, the cost goes down to around 1.37 – but the Lender still has to package that fee into the interest rate – so you will be paying a slightly higher rate to have the PMI included in your monthly payment.

• Borrower-Paid Single Premium PMI: The borrower may either pay in cash or finance the up front premium into the loan amount, subject to lender guidelines. The single premium may be paid partially or in full by the builder, seller, or other interested third-party. Single premium plans are available as refundable or non-refundable.  A non-refundable PMI Premium is advantageous to the PMI Company, and is obviously going to be charged at a lower rate than refundable PMI Premiums.
  • The PMI Rate for Borrower Paid Single Premium – Priced as a NON refundable premium, the PMI Rate for Borrower Paid Single Premium with good credit, on a single family house (Disclosure above etc., etc.) prices out exactly like the Lender Paid MI.  Meaning for a NON refundable 95% LTV with 740 credit scores, you will be paying the $1650 or so out-of-pocket.  Now, it is more if you get refundable. The Builder, your company that is relocating you, whoever can pay the upfront fee – whether it’s refundable, or non-refundable.

• Borrower Paid Split Premium PMI:  In some circumstances, you might have SOME money that you are getting from one source (like the Seller) and other money that you are getting from another source (maybe it’s a gift or coming from a Company relocation plan) and you want to put that extra money to work.  You can pay a smaller Upfront PMI Premium in cash at closing, and then pay a monthly fee, which can be cancelled based upon the time you reach 78%LTV of your original value.
  • The PMI Rate for Borrower Paid Split Premium PMI – if you meet all of those disclosed variables listed above (your credit is over 740, you have the type of housing the lender is pricing you out for, etc) on a 95% loan OR a 90% loan you will pay .50.  So, on a loan of $95,000 you will be charged an upfront premium (fee) of $475.  This fee WILL be counted into the maximum fees that can be paid on your behalf based upon Qualified Mortgage Rules.  The monthly PMI Rate / charge for a 95% loan is .53, or $41.96 a month, and the PMI Rate /charge for a 90% LTV is .31 – so it’s not a big difference from the Borrower Paid PMI Rate that DOESN’T have an upfront fee.

• The NC Housing Finance Agency has a Special PMI Rate for First Time Home Buyer Grants:  Best part is… You do NOT have to be a first time Home Buyer to qualify for the program, however, you can not CURRENTLY own another property to qualify.  The total allowable income for the APPLICANT (not household income like we have to use for USDA Home Loan Income Qualifying) is $87,5000.  So if there are 2 people on the loan, or 1 person, or 5 people – the total income to qualify for this low PMI Rate is $87,500 no matter what county you live in here in NC.  There are no restrictions about where the property is located, however the special PMI Rates are only available for Single Family Homes and townhouses – not for manufactured homes, or Condos.  The minimum Credit Score for this special PMI Rate is 640, and the MAXIMUM Debt to income ratio is 45.00000000%.  The PMI can be cancelled based upon the time you reach 78% LTV of your original value – and there’s Down Payment Assistance money available.
  • The PMI Coverage Rate for NCHFA Affordable Home is .18%.  This means your payments on this program are significantly lower than any other form of PMI.  There’s no upfront fee to be paid, and the rate does NOT change based upon higher or lower credit scores.  It is, by far, the best game in town on a Conventional Loan.  The mortgage interest rate for the program is set by the State, and it will not vary based upon what lender you use.  It’s the lowest PMI Rate available in NC… but your MORTGAGE Interest rate is likely to be slightly higher than what we are quoting for other Conventional Loans.  Again, this mortgage rate is SET BY THE STATE, and it changes pretty regularly.  Even with the slightly higher interest rate, the “break” for the lower PMI Rate (especially for those with credit scores under 700) makes this a GREAT program, saving most folks over a $1000 a year.

How to Avoid PMI

Don’t get me wrong, PMI isn’t a bad thing — it allows you to make a lower down payment and still qualify for a mortgage loan!  But some folks just don’t want to have ANY PMI – for those folks, the options are pretty simple… Make a 20% down payment.

If you don’t have the full 20% for a down payment, there are second mortgages, and Equity lines available.  They went away during the worst of the recession, however we DO have Second Mortgage and Equity Line options, which usually mean you will need to make a MINIMUM of a 10% Investment into the property.  The rates on them are generally variable – meaning as mortgage rates go up in the next few years, the rate on your second mortgage will go up too.

The minimum credit scores to qualify for the Second Mortgages and Equity Lines are generally over 680, with the best options for folks with middle credit scores well over 720.  The overall Debt to Income Ratios are also considered with the Equity Lines and Second Mortgages – and because these rates change daily – I can’t even begin to give you a quote on a rate.  I can tell you that when you call us, we’ll be glad to give you side by side comparisons of a loan WITH PMI, and a loans with secondary financing (assuming you qualify for it).

Government Mortgage Loan PMI Rates

Government Loans, the ones that generally have VERY LITTLE to no down payment required, also have a form of Mortgage Insurance.  You see, FHA, and the Veteran’s Administration and the USDA Home Loan Program don’t actually MAKE mortgage loans.  They issue rules under which they will APPROVE the Mortgage Insurance for a lender.  We call that Mortgage Insurance USDA Loan PMI (for instance) – but it’s actually not “referred to” as that in the Guidelines.  USDA Loan Guarantee Fees are what I’m referring to here as USDA Loan PMI Rates.

Technically, Government Mortgage Loan PMI Rates go by very different acronyms… but it’s still mortgage insurance that covers the lender in case you quit making your mortgage payments.  The rates on these programs are set by the Government Agency, they can change on a regular basis – but at this time, none of the Government Backed Mortgage Loan PMI Rates allow you to “get out of” PMI once you hit ANY Equity position.  If you have a government loan, you have that Government Mortgage Loan PMI until you pay the mortgage off.

If you have questions about How PMI Is Calculated – Current PMI Rates in NC, and you are looking for the BEST Mortgage Rates – please call Steve and Eleanor Thorne, 919-649-5058.  We are Professional Mortgage Planners with over 20 years of experience helping First Time Home Buyers in NC!