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Why PMI Can Be A Good Thing

Mike Chissell, Trusted Mortgage Advisor • Mar 11, 2022

When people think of private mortgage insurance they think of an extra monthly payment on their mortgage. We are here to educate you on how it can be a useful tool.


Back in the 1950’s, the only way you could get a mortgage was by going 20% down. Private mortgage insurance was created to help home buyers be more flexible while reducing the risk of foreclosure for the lenders. This was a win-win for both sides, due to homebuyers not having to have put so much cash down initially, while the lenders could keep their investment safe. 


PMI may be cheaper than you think. Let's use an example that you want to purchase a home with a sales price of $300,000. If you were going to avoid private mortgage insurance, you would have to put 20% down or $60,000 down for the down payment on the home. Now not everyone has that kind of cheddar and that's not including the earnest money deposit, appraisal fee and all of the closing costs associated with purchasing a home. It will cost you closer to $100,000 dollars to purchase that home that you may not have. But you may have income that would be good enough to purchase the home. You could go 3% down and only bring somewhere around 30k for all of the closing costs and at the price of an extra 95 dollars a month, lower the upfront costs and get in your new home today.


Another way that PMI is flexible is that it doesn't have to be paid monthly. You can pay it all at once with a single premium mortgage insurance or SPMI. Or you can do a Split Premium which is half BPMI and half SPMI.  You would pay half of it up front and half of it monthly. This is great for higher debt to income borrowers since it would not increase your ratio as much as a borrower paid mortgage insurance and it's half the cost of single premium mortgage insurance.

 

Having PMI can actually lower your interest rate. This is a crazy scenario but it does happen. Lenders like PMI so much that going 19% down with PMI can give you a lower interest rate than going 20% down. It may not happen every time but it absolutely it a possibility that some of our borrowers can take advantage of! 


If you want to learn more about PMI, please contact Chissell Mortgage Group at (727) 376-6900.                         

 

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