What is PMI? Six reasons to avoid it.
What is Private Mortgage Insurance – Before buying a home, you should ideally save enough money for a 20% down payment. If you can’t, it’s a safe bet that your lender will force you to secure private mortgage insurance (PMI) prior to signing off on the loan, if you’re taking out a conventional mortgage. The purpose of the insurance is to protect the mortgage company if you default on the note.
6 Reasons To Avoid Private Mortgage Insurance (READ TO THE BOTTOM TO FIND OUT HOW WE HELP YOU AVOID IT)
1. Cost – PMI typically costs between 0.5% to 1% of the entire loan amount on an annual basis. You could pay as much as $1,000 a year—or $83.33 per month—on a $100,000 loan, assuming a 1% PMI fee. However, the median listing price of U.S. homes, according to Zillow, is $279,000 (as of Feb. 28, 2019), which means families could be spending as much as $233 a month on the insurance. That’s as much as a small car payment!
2. No Longer Deductible – Up until 2017, PMI was still tax deductible, but only if a married taxpayer’s adjusted gross income was less than $110,000 per year. This meant that many dual-income families were left out in the cold. The 2017 Tax Cuts and Jobs Act ended the deduction for mortgage insurance premiums entirely, starting in 2018.
3. Your Heirs Get Nothing – Most homeowners hear the word “insurance” and assume that their spouse or kids will receive some sort of monetary compensation if they die, which is not true. The lending institution is the sole beneficiary of any such policy, and the proceeds are paid directly to the lender (not indirectly to the heirs first). If you want to protect your heirs and provide them with money for living expenses upon your death, you’ll need to obtain a separate insurance policy. Don’t be fooled into thinking PMI will help anyone but your mortgage lender.
4. Giving Money Away – Homebuyers who put down less than 20% of the sale price will have to pay PMI until the total equity of the home reaches 20%. This could take years, and it amounts to a lot of money you are literally giving away. To put the cost into better perspective, if a couple who owns a $250,000 home were to instead take the $208 per month they were spending on PMI and invest it in a mutual fund that earned an 8% annual compounded rate of return, that money would grow to $37,707 (assuming no taxes were taken out) within 10 years.
5. Hard to Cancel – As mentioned above, usually when your equity tops 20%, you no longer have to pay PMI. However, eliminating the monthly burden isn’t as easy as just not sending in the payment. Many lenders require you to draft a letter requesting that the PMI be canceled and insist upon a formal appraisal of the home prior to its cancelation. All in all, this could take several months, depending upon the lender, during which PMI still has to be paid.
6. Payment Goes On and On – One final issue that deserves mentioning is that some lenders require you to maintain a PMI contract for a designated period. So, even if you have met the 20% threshold, you may still be obligated to keep paying for the mortgage insurance. Read the fine print of your PMI contract to determine if this is the case for you.
THIS IS WERE WE COME IN. WE OFFER MORTGAGE PROGRAMS THAT HELP YOU AVOID PMI. BUYING A HOME IS ALREADY A HUGH PURCHASE SO WHY SHOULD WE MAKE YOU PAY MORE FOR IT? NOT EVERYONE WILL QUALIFY FOR OUR NO PMI MORTGAGE – WE HAVE TO BE HONEST ABOUT THAT BECAUSE WE DON’T WANT TO BE MISLEADING. ALSO CHECK TO SEE HOW MUCH YOU ARE PAYING IN FEES/CLOSING COSTS – YEAH WE HELP THERE TOO. CALL US TODAY OR VISIT OUT MORTGAGE PAGE.