Default insurance premiums are calculated as a percentage of your mortgage amount. (Purchase price, less your down payment) If your down payment is not borrowed, then the premium is 3.15% of the mortgage amount. It is a one time cost (not annual, not paid again at renewal) and that cost is most commonly added back in to your total financed amount. You do have the option of paying the premium up front, but most people finance the cost.
For example, let’s say you are buying a house for $400,000 with 5% down ($20,000)
Purchase price: 400,000
Down payment: – 20,000
Mortgage amount: 380,000
Default Insurance: 11,970.00 (3.15% of 380,000)
380,000 + 11,970.00 = 391,970.00
Total financed amount = $391,970.00
Your mortgage payments will be based on the total financed amount. The premium charged for the default insurance will change depending on different risk factors. You can read more about that here. 🙂
