Monthly (Periodic) Mortgage Insurance Premium Calculation
The formula for calculating monthly mortgage insurance premium became effective May 1, 1998 (see Mortgagee Letter 98-22 Attachment).
Below is the monthly mortgage insurance premium (MIP) calculation with examples and pseudocode using the annual and upfront MIP rates in effect for mortgages assigned an FHA case number before October 4, 2010. See the FHA Single Family Housing Policy Handbook 4000.1, Appendix 1.0 Mortgage Insurance Premiums [PDF] for the annual and upfront MIP rates currently in effect.
Premium Calculation
| Monthly MIP Computation Steps | Example |
|---|---|
| Step 1: Compute annual average outstanding balance based on the original amortization schedule (see below)/sites/documents/doc | Average Outstanding Balance for 1st amortization year: $106,160.654166666666 |
Step 2: Average Outstanding Balance * Annual MIP Rate (round to 2nd decimal place based on value in 3rd decimal place). | 106,160.654166666666 x.005 = 530.803270833333333 round to 530.80 |
Step 3: If MIP financed, divide annual MIP from Step 2 by (1 + Upfront MIP factor) Result rounded to 2nd decimal place based on value in 3rd decimal place. | 530.80/ (1 + 0.0225) = 519.1198 round to 519.12 |
Step 4: Divide by 12 and round to nearest cent for Monthly MIP. Result rounded to 2nd decimal place based on value in 3rd decimal place. | 519.12/ 12 = 43.26 round to 43.26 |
Step 5: Multiply by 12. This is the Annual Premium. | $519.12 |
Computation of Annual Average Outstanding Balance
To start, use the original loan amount as the previous balance. Repeat the following steps for the remaining months in the year (11 iterations). The calculation of subsequent years is the same. The second year will begin with the last result of the first year.
- Multiply previous balance times annual contract interest rate. Round the result to two (2) decimal places based on value in 3rd decimal place.
- Divide result by 1200. Round the result to two (2) decimal places based on the value in 3rd decimal place.
- Add previous balance.
- Subtract P&I payment. Note: For an ARM use original Interest Rate and original P&I through all years. For GEM/GPM compute current P&I based on amortization plan. See table below.
When the final year is computed, total up the 12 results for that year and divide the total by 12.
| AMPLAN | RATE OF INCREASE | MONTHS OF INCREASE |
|---|---|---|
A | .025 | 60 |
B | .050 | 60 |
C | .075 | 60 |
D | .020 | 120 |
E | .030 | 120 |
F | .049 | 120 |
L | .010 | 999 |
M | .020 | 999 |
N | .030 | 999 |
O | .040 | 999 |
P | .050 | 999 |
The new monthly P&I for GEM/GPM is not calculated if the twelfth month of the case has not been reached or if the payment number is greater than the maximum number of months.
Premium Calculation Example
| Field | Value |
|---|---|
| Original Mortgage Amount | $106,605 |
| Interest Rate | 7.5 |
| Monthly P&I* | 745.40 |
| Annual MIP Rate | 0.005 |
| Upfront Factor | 0.0225 |
| Beginning Amortization Date | 04/2008 |
| Today's Date | 12/2009 |
*Based on the original amortization schedule.
Compute the annual average outstanding balance:
| Month/Year | Computation | Result |
|---|---|---|
| Year 1 / Month 1 | (Use Original Mortgage Amount) | $106,605.00 |
| Year 1 / Month 2 |
| $106,525.88 |
| Year 1 / Month 3 |
| $106,446.27 |
| Year 1 / Month 4 |
| $106,366.16 |
| Year 1 / Month 5 |
| $106,285.55 |
| Year 1 / Month 6 |
| $106,204.43 |
| Year 1 / Month 7 |
| $106,122.81 |
| Year 1 / Month 8 |
| $106,040.68 |
| Year 1 / Month 9 |
| $105,958.03 |
| Year 1 / Month 10 |
| $105,874.87 |
| Year 1 / Month 11 |
| $105,791.19 |
| Year 1 / Month 12 |
| $105,706.98 |
| Total of the Year 1 results | $1,273,927.85 |
| Divided by 12 This is the Annual Average Outstanding Balance | $106,160.654166666666 |
See Premium Calculation table at beginning of page for remaining steps to calculate Year 1 premium | |
| Year 2 / Month 1 |
| $105,622.25 |
| Year 2 / Month 2 |
| $105,536.99 |
| Year 2 / Month 3 |
| $105,451.20 |
| Year 2 / Month 4 |
| $105,364.87 |
| Year 2 / Month 5 |
| $105,278.00 |
| Year 2 / Month 6 |
| $105,190.59 |
| Year 2 / Month 7 |
| $105,102.63 |
| Year 2 / Month 8 |
| $105,014.12 |
| Year 2 / Month 9 |
| $104,925.06 |
| Year 2 / Month 10 |
| $104,835.44 |
| Year 2 / Month 11 |
| $104,745.26 |
| Year 2 / Month 12 |
| $104,654.52 |
| Total of the Year 2 results | $1,261,720.93 |
| Divided by 12 This is the Annual Average Outstanding Balance | $105,143.410833333333 |
| Multiplied by the Annual MIP Rate (.005) | $525.7170541667 |
| Rounded to two (2) decimal places | $525.72 |
| Divided by 1 + Upfront MIP Factor (1 + .0225) | $514.1515892421 |
| Rounded to two (2) decimal places | $514.15 |
| Divided by 12 | $42.8458333333 |
| Rounded to two (2) decimal places This is the Monthly MIP | $42.85 |
Multiply Monthly MIP by 12 This is the Annual MIP | $514.20 |
Pseudocode
Input Values
interest = Interest Rate
mip = Annual MIP Rate
months = Years Since Amortization Date * 12
orig_mtg = Original Mortgage Amount
p_i = Monthly Principal & Interest
upfront = Upfront MIP Factor
hold_val = A variable to store intermittent results
total_amt = A variable to sum the last 12 months
BEGIN
last_val = orig_mtg
total_amt = last_val
FOR (I = 2 TO months)
hold_val = last_val * interest
[ROUND hold_val to 2 places after the decimal]
hold_val = hold_val / 1200
[ROUND hold_val to 2 places after the decimal]
hold_val = hold_val + last_val
hold_val = hold_val - p_i
last_val = hold_val
total_amt = total_amt + last_val
IF (REMAINDER(I / 12) = 0) AND (I <> months) THEN
total_amt = 0
END IF
NEXT I
total_amt = total_amt / 12
total_amt = total_amt * mip
[ROUND total_amt to 2 places after the decimal]
total_amt = total_amt / (1 + upfront)
[ROUND total_amt to 2 places after the decimal]
total_amt = total_amt / 12
[ROUND total_amt to 2 places after the decimal]
PRINT: Monthly Premium = total_amt
END