How to calculate home loan insurance premium
When purchasing a home, many home buyers choose to take out a loan, and the loan process often requires the purchase of home loan insurance (also known as mortgage insurance or mortgage insurance). The purpose of this insurance is to protect the bank's interests if the borrower is unable to repay the loan. So, how is home loan insurance premium calculated? This article will explain it to you in detail.
1. What is home loan insurance?
Home loan insurance is a compulsory or voluntary purchase of insurance. Banks usually require borrowers to purchase it when the loan ratio is high (such as the down payment is less than 20%). Its main purpose is to reduce the bank's loan risk and ensure that when the borrower defaults, the bank can obtain compensation through insurance.
2. Calculation Factors of Home Loan Insurance Premium
Home loan insurance premiums are usually calculated based on the following factors:
| calculation factors | Description |
|---|---|
| loan amount | The insurance premium is usually proportional to the loan amount; the higher the loan amount, the higher the insurance premium. |
| loan term | The longer the loan term, the higher the total insurance premium may be. |
| Down payment ratio | The lower the down payment, the higher the insurance rate is likely to be. |
| Borrower credit score | Borrowers with lower credit scores may have to pay higher insurance premiums. |
| insurance type | Rates may differ for different types of insurance (such as lump sum or installment payments). |
3. Calculation method of home loan insurance premium
Home loan insurance premiums are usually calculated in the following ways:
| Calculation method | Description |
|---|---|
| one time payment | The insurance premium is paid in one lump sum when the loan is issued, usually 1%-3% of the loan amount. |
| Installment payment | The premium is spread out over monthly payments, and the rate may be slightly higher than a lump sum payment. |
| Pay annually | The insurance premium is calculated annually and adjusted annually based on the remaining loan amount. |
4. Example calculation of home loan insurance premium
Assume that the loan amount is 1 million yuan, the down payment ratio is 10%, the loan term is 30 years, and the insurance rate is 1.5%. Here are the calculations for different payment methods:
| Payment method | Insurance premium amount |
|---|---|
| one time payment | 1 million × 1.5% = 15,000 yuan |
| Installment payment (monthly payment) | 15,000 yuan spread over 360 months, about 41.67 yuan per month |
| Pay annually | The first-year insurance premium is 15,000 yuan, and will decrease year by year thereafter. |
5. How to reduce home loan insurance premiums?
1.Increase down payment ratio: The higher the down payment ratio, the lower the insurance rate may be.
2.Improve credit score: A good credit score can help get lower insurance rates.
3.Choose a one-time payment: Rates for one-time payments are usually lower than for installment payments.
4.Compare different insurance products: The rates of different insurance companies may vary, so it is recommended to compare with multiple parties.
6. Things to note about home loan insurance
1.Insurance period: Home loan insurance usually covers the entire loan term, but some products may automatically cancel after the loan balance falls below a certain percentage.
2.surrender policy: Some insurance products allow partial refund of premiums after repaying the loan early, so you need to understand the policy in advance.
3.insurance coverage: Confirm whether the insurance covers repayment risks under special circumstances such as unemployment and illness.
Summary
The calculation of home loan insurance premiums involves many factors such as loan amount, term, down payment ratio, etc. The payment method also affects the final cost. Home buyers can lower their insurance premiums by increasing their down payment ratio and improving their credit scores. When choosing an insurance product, be sure to read the terms carefully to ensure it meets your needs.
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