Estimating Rates for Private Mortgage Insurance
PMI rates may differ based on various factors such as:
1. Loan-to-Value (LTV) Ratio: LTV ratio is expressed as the ratio of a loan to the value of the asset being purchased. Generally, there is a direct relation between the LTV ratio and the PMI rate, which that means, the higher the LTV ratio, the higher the PMI rate. The LTV ratio can be calculated by using the formula,
[Tex]LTV=\frac{Appraised~Value~or~Purchase~Price}{Loan~Amount}\times100[/Tex]
2. Credit Score: Borrowers having higher credit scores tend to qualify for lower PMI rates. A customer having a higher credit score is less risky in the eyes of the lender. The lender may offer a lower PMI premium based on the credit score of the person.
3. Down Payment Size: The size of the down payment made can also affect the PMI rate. A larger down payment usually results in a lower PMI rate because it reduces the lender’s risk.
4. Loan Term: The length of the loan term can also influence the PMI rates. Usually, longer loan terms may have slightly higher PMI rates.