Question

Juan is planning to purchase a $225000 home using an FHA loan that requires 10% down. He's got enough money saved up for the down payment as well as the 1.75% upfront mortgage insurance premium he'll have to pay to get the loan. Each month for the first 11 years of this loan, Juan will need to make monthly mortgage insurance premium payments that will annually average to 1.15% of the original loan principle. How much will Juan pay in total (including the upfront and ongoing costs) for mortgage insurance?

Answer 1

Juan will pay a total of $32,400 for mortgage insurance, including both the upfront premium and the ongoing monthly payments.

Step-by-step explanation:

To calculate the total cost of mortgage insurance for Juan, we need to consider the upfront mortgage insurance premium and the ongoing monthly payments. The upfront premium is 1.75% of the loan amount, which is $225,000 * 0.0175 = $3,937.50.

For the ongoing monthly payments, Juan needs to pay an average of 1.15% of the original loan principal annually for the first 11 years. This is $225,000 * 0.0115 = $2,587.50 per year. Over 11 years, the total cost would be $2,587.50 * 11 = $28,462.50.

Adding these costs together, Juan would pay a total of $3,937.50 + $28,462.50 = $32,400 for mortgage insurance.