Calculating Mortgage Insurance on FHA Loan?
Calculating mortgage insurance on FHA loan doesnt require you to be an accounting graduate. All you need to do is to acquire the necessary data you need and the right equipments to compute it. Its simple and easy as long as you follow the step by step procedures.
Before anything else, Federal Housing Administration (FHA) is a popular loan acquired by individuals who are planning to purchase a new house. But, they only have a minimal amount for the down payment. In order to ensure that you mortgage will not result to foreclosure due to default payments, lending companies would normally require you to apply for mortgage insurance. There are two ways of calculating mortgage insurance. For this article, you will learn how to compute both mortgage insurances which is first the upfront insurance premium and second is the monthly premium.
Computing for upfront insurance premiums
- In calculating mortgage insurance on FHA loan, the first thing you need to do is to acquire your total amount loaned. For example, the price of the house is $150, 000. Deducting the 3.5% down payment which is $5,250, your loan amount would be $144, 750. $5,250 is computed by multiplying $150,000 by 0.035.
- Once you have determined the amount, you can now compute for the upfront insurance premium. In doing this, you have to multiply the loan amount by 2.5%. Continuing the example, $144,750 by 0.025 would be $3,618.75.
- After obtaining the 2.5% interest, add it to your loan amount. Again, for illustration purposes, $144,750 plus $3,618.75 equals $148,368.75. Round the result to $148,350. The remaining $18.75 would be collected once all dues are settled.
- And that completes the first part of the computation. You will need this result in computing for the monthly premium.
Computing for monthly premium
- In computing for the monthly payment, multiply the amount obtained in the previous step by 0.55%. For the previous example, $148,350 multiplied by 0.0055 would result to $815, 925 which would stand for your yearly interest.
- To obtain the monthly interest, all you need to do is to divide the yearly interest into 12 months. Thus, $815,925 divided by 12 would be $67.99.
- The $67.99 will be added to your monthly payment. In addition to the monthly principal amount, taxes and other miscellaneous fees.
That covers the step by step procedure in computing your mortgage insurance. In these procedures, all you need is a piece of paper, pen and a standard calculator.
Before you start calculating for your mortgage interests make sure that your loan amount is accurate. You can obtain this at your lending institutions. As for the monthly interests, there is a general rule, that when you have completed paying 78% of your loan amount, the monthly insurance premium can be canceled. This is also applicable for individuals who applied for 15 year mortgage. Once you reach the 78% of your loan amount, you dont have to wait for years before the monthly insurance premium is canceled.
With that, you can now determine your monthly interest by following these simple steps in calculating mortgage insurance on FHA loan.