PMI (private mortgage insurance) is one of the many products of insurance companies for mortgage lenders. It is designed to protect them from borrowers who will default in their payments. The law requires that when the down payment on a home is less than 20% of the value of the home, the borrower takes out a Private Mortgage Insurance.
When you want to calculate your exact PMI balance, you will need your principal balance, the PMI rate, the recent home appraisal and the amortization schedule. The appraisal of your home will give you the current market value of your property. You will need to determine the loan to value ratio of your (LTV) first. For this, you will need the remaining balance you owe the mortgage lender. This value will be divided by the appraised value of your home and the percentage you get is your loan to value ratio.
If the percentage of your LTV is more than 80%, you need to look at the corresponding rate according to your lender. There are different rates for different loan-to-value ratios and these rates vary from one lender to the other. All lenders have a PMI chart, and will have corresponding rates according to their charts.
Second, you need to determine how much you will pay your lender every year. This is simple, just multiply the value of mortgage you pay per month by the number of months remaining for you to pay. When you have this balance, multiply it by the rate of your PMI. Using the PMI chart of your lender, you will have already determined the rate of your PMI. Once you have the figures, you will divide it by twelve months, which will determine the monthly premium you will have to pay to the insurance company every year.
The function of your amortization schedule in all this is to help you know then your LTV will drop to a value below 80%. When this happens, you do not have any need to pay PMI and you can save the money for other purposes. When you are sure the rate has dropped below 80%, you’re your lender yourself and ensure that it has been removed. Most people are paying the PMI rates out of their own ignorance. Ensure that you have the most recent appraisal of your home. Do not use one that has expired. You will have an advantage if your home has increased in value over time since it will reduce the LTV ratio on your home and get you below the 80% which will then justify your non-payment of the PMI.
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