Why Private Mortgage Insurance (Commonly Known as PMI) Isn’t So Bad
The ideal buying situation for anyone purchasing a home would be to put at least 20% down. You would benefit from the lowest interest rate, a lower balance on the mortgage that you owe, and you would avoid the big, bad PMI. Of the 3 mentioned benefits, most people seem to be fixated on PMI.
For those that don’t know about PMI, Private Mortgage Insurance is an insurance paid by the consumer to protect the lender in case your mortgage goes into default. Since you are putting less than the “required” 20% down, your mortgage is considered a higher risk loan for the servicer.
There are 2 ways of looking at PMI. One way is that it’s a drag because you have to pay additional money for an additional insurance that doesn’t even cover you. The other way is that without PMI, most first time buyers could never enjoy the American Dream of owning a home. The fact of the matter is that most first time buyers struggle to save up for the minimum down payment allowed. (3.5% – 5%) Granted, there are certain mortgage products that allow a buyer to put no money down but you would have to qualify within their guidelines and most people and homes do not.
When working with your loan office on financing your home, be sure to ask for the different ways of structuring the PMI. Typically it can be paid monthly, finance it into the loan balance, pay a one-time premium up front, or build it into the interest rate. You’d be surprised how much you can save per month by exploring these different options. Every client and transaction is different so be sure that you are dealing with an experienced, knowledgeable loan officer that has your specific needs as their priority.
For more information on this or if you have any other mortgage related questions, I am always available to help.
Michael M. Amaro
Mortgage Master, Inc.
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