Mortgage insurance protects a lender from losing his entire shirt if a homeowner defaults on her mortgage payments. In the case of an FHA-endorsed mortgage, mortgage insurance is required if your down payment is less than 20 percent of the appraised value of your new home. The FHA requires two separate types of mortgage insurance: an upfront mortgage insurance premium, known as UFMIP, and an annual mortgage insurance premium, payable monthly. Once the principal you owe is down to 80 percent, you no longer have to carry mortgage insurance.
Calculate Your Up Front Mortgage Insurance Premium
Determine whether your mortgage is a purchase money mortgage, a streamline refinance or a full-credit qualifying refinance. A purchase money mortgage is a typical mortgage, not a refinance. A streamline refinance is the refinancing of an existing FHA insured loan with less paperwork; to qualify, you must be current on your initial mortgage, the refinancing must result in a lower monthly payment and you can't take any cash out of the transaction, such as funds to pay for a remodel. All other refinance mortgages are full-credit qualifying refinances.
Multiply the amount of your mortgage by 0.015 if you have a streamline refinance mortgage. For all other mortgages, multiply the amount of the mortgage by 0.0175.
Round down to the nearest dollar. This is the amount of your up front mortgage premium payment. This payment is due within 10 days of the close of your loan or you will be subject to a late fee and interest payments.
Calculate Your Annual Mortgage Insurance Premium
Multiply your mortgage amount by 0.005 if your mortgage has a 15-year term or longer, you have been making payments for less than five years and your principal balance is greater than 78 percent of the value of your home. This is your annual mortgage insurance premium amount. Once you owe less than 78 percent and you've made payments for at least five years, whichever is later, you no longer owe an annual mortgage insurance premium.
Multiply your mortgage amount by 0.0025 if your mortgage term is less than 15 years and your principal balance is greater than 78 percent of the value of your home. This is your annual mortgage insurance premium amount. Once you owe less than 78 percent, you no longer owe an annual mortgage insurance premium.
Divide your annual mortgage insurance premium amount by 12 to arrive at your monthly payment amount, which is due by the 10th of each month.
- Your up front mortgage insurance premium does not count against your maximum allowable mortgage loan amount.