If you have less than a 20% down payment to purchase your new home, you may still be eligible for a mortgage with the support of mortgage default insurance. Mortgage default insurance can help you to purchase your new home as long as you have a minimum of a 5% down payment. In fact having mortgage default insurance is mandatory unless your down payment on your new home is of 20% or more.
But How Much Does Mortgage Default Insurance Cost?
In order to calculate the overall cost of your mortgage default insurance you take the overall purchase price of the home and subtract the overall dollar amount of your down payment. This gives you the actual mortgage amount that you need to insure. For example, if the purchase price is $450,000.00 and your down payment is $40,000.00, then your actual mortgage amount would be $410,000.00.
Next, in you will need to know the actual percentage of your down payment in relation to the purchase price. To do this you would take the down payment amount and divide it by the purchase price. For example, if you use the same figures as above you would take $40,000 and divide it by $450,000, which would mean that the percentage of your down payment is 8.9%.
Now knowing that your down payment is 8.9% of your overall purchase price, you would take a look at your insurance providers premiums for that percentage range. As an example we will use the following premiums:
5% – 9.99% down payment = 2.75% premium
10% – 14.99% down payment = 2.00% premium
15 – 19.99% down payment = 1.75% premium
20% or more down payment = 0% premium
As your down payment is 8.9% of your overall purchase price that would mean that your mortgage default insurance premium according to the chart above would be 2.75%.
To calculate the actual dollar amount that your default mortgage insurance would cost you over the amortization of your mortgage you would take the 2.75% premium and multiply it by your actual mortgage amount of $410,000.00 – This means that you will pay approximately $11,275.00 in mortgage insurance.
One thing to keep in mind when contemplating mortgage default insurance is that if the home that you are looking to purchase is valued at 1 million dollars or more you must have a 20% down payment as homes of that value or more is not eligible for mortgage default insurance.
If you are wanting to decrease your insurance premium, you will need to increase your down payment until you qualify for the next tier of the premiums in the chart outlined above.
If you have any questions about mortgage default insurance or would like to take a look at your finances with me to see if you could be eligible to purchase a new home, taking advantage of default mortgage insurance, just give me a call at 705-315-0516 and we’ll set up and appointment to do just that.