The costs of Mortgage Insurance (MI) varies from program to program and the government-backed programs (like FHA, USDA, etc.) have predetermined MI factors that only vary based on the Loan to Value (LTV) and the loan term (i.e. 30 year vs. 15 year fixed). Conversely, the costs of MI for conventional loans (i.e. loans that aren’t government-backed) varies greatly depending on the loan program, the type of transaction, and the borrower’s overall credit profile. Our Mortgage Calculators take into account these MI factors to produce accurate payment options for each program.
Because the MI costs for government-backed loans are predetermined and not credit based we will not be addressing those factors here. For conventional loans there are primarily four types of MI (monthly, single premium, lender-paid, split premiums) and for each type there are different pricing “tiers”. These “tiers” are determined by the down payment for purchase loan (or the equity amount for refinance loans). The costs of the mortgage insurance is reduced with every 5% increment of a Down Payment.
Example: the first tier of 5% down has the most expensive MI, 10% down has less expensive MI, 15% down is the least expensive, and 20% or more down doesn’t require any Mortgage Mortgage. Note: technically there is a 3% down payment option for time-time buyers and it has the most expensive MI.
Conventional MI Factors
In addition to the down payment the amount of MI charged is based off of a variety of other factors. Check out our Mortgage Calculators that automatically factors these items in the payment calculations. Below are the criteria that influence the MI rate, ranked from the most influential to the least influential:
Loan Period: the MI rate is lower for loans with a 15 year period or less. For loans greater than 15 years (like a 20, 25, or 30 year mortgage) the MI rate is increased.
Loan to Value: the MI rate is reduced for every 5% equity increment. For this reason we typically recommend down payments of 5%, 10%, 15%, or 20% (or more). For example: the MI rate will be the same for a 5% down payment as it would be for a 9% down payment.
Credit Scores: MI rates are impacted by the borrower’s credit scores. The better the score, the lower the rate.
Miscellaneous: there are other factors that impact the MI rate, however they are minor compared to the aforementioned items. Examples of other factors include the occupancy type (i.e. primary residence verses second home), transaction type (i.e. purchase vs. refinance vs. cash out), loan amount (conforming verses jumbo), etc..
Please call us if you have any questions about the MI or the payment calculators.