A home mortgage calculator with PMI helps consumers determine truly accurate monthly payments- monthly payments that take into account every last dollar you’re going to need to spend, and not just the principal & interest you’ll pay to your bank. PMI stands for private mortgage insurance, which has a few crucial differences compared with homeowners’ insurance.
The whole world of property ownership would be a lot easier if buyers only had to take three factors into their payment equations- the principle of their loan, their interest rate, and the length of their loan. But even though these are the big three values that get tossed around when we talk about lending, there are other factors that need to be considered as well if you’re going to get a truly accurate picture of what you’re going to be paying every month. And one of those additional factors is a big, necessary one- insurance.
To complicate matters further there isn’t just one type of insurance out there for property owners. Instead, there are two general categories we can use to discuss insurance. One is homeowners insurance, the other is private mortgage insurance. These are two different types of insurance that cover two different categories of liabilities.
Let’s take a quick minute to explain what sort of liability each of these covers.
This insurance protects you and your property. Homeowners insurance is often also known as hazard insurance because it insures what you own in the case of some sort of unexpected negative occurrence. Basically if a storm or a fire or some other natural catastrophe damages or destroys your property your homeowners insurance will cover what it takes to restore the damages your property incurred.
Homeowners insurance is required under most loans because it makes sure your property will basically
retain its value, and your bank will retain their investment, in the case of significant damages to it.
It’s important to note that homeowners insurance does not generally cover personal property and simply refers to the building itself, so it’s a good idea to have insurance on your possessions as well.
Private Mortgage Insurance (PMI)
By contrast, PMI is insurance that protects your lender in case you default on your loan. PMI basically lets your lender recover some of the costs and some of the losses they incur if you go into foreclosure and they need to repossess and then resell your property.
PMI can be expensive or it can be pretty cheap. It all depends on how big of a risk you are in the eyes of the bank. If the bank thinks you’re more likely than the average person to suffer a foreclosure then your PMI is going to be higher than average, as will many of the other terms of your loan. If the bank thinks you’re a relatively stable, secure and safe investment, then your PMI will be relatively low.
PMI is divided into two camps. One is borrower-paid PMI, the other is lender-paid PMI. Borrower-paid PMI is most common and it can be paid all at once or it can be paid monthly, or you can combine the two and pay some upfront and the rest monthly. Lender-paid PMI doesn’t require a monthly payment because its expenses simply correspond with an increase in your interest rate.
To understand how PMI factors into your mortgage you need to use a home mortgage calculator with PMI. If you don’t, you won’t get the full picture of what your property actually costs you, and you won’t be empowered enough to make informed decisions related to your loan.