The Pros and Cons of Private Mortgage Insurance

If you search “About Private Mortgage Insurance,” most of the articles you’ll find will be about how to avoid paying for PMI. While it makes sense to avoid paying more than necessary for your new home, don’t try to ditch your PMI just because that’s what everyone else is trying to do. Lets walk you through the pros and cons of PMI so that you can make an informed decision when financing your home.

The Pros of PMI

PMI will save you time. It allows you to make a smaller down payment so that you can buy now instead of in 10 years, when you’ve finally accumulated a 20% down payment. This makes it an especially attractive offer for young buyers.

PMI can be paid up front. What does that mean for you? It means that if you have the cash to pay the premium, you can lower your monthly payments and still buy your home with a lower down payment. In some cases, the lender may even offer the homeowner a discount for paying the PMI up front.

For many Americans, PMI is a tax deductible expense. Individuals that earn less than $109,000 will typically find that their PMI is tax deductible.

The Cons of PMI

Private mortgage insurance is an additional expense to budget for. It might save you time, but it still adds to your monthly payment.

If you earn more than $109,000 per year, your PMI will not be tax deductible. If you are in a lower income bracket, PMI is better suited to you.

Depending on the size of your loan and your interest rate, it could take as long as 15 years before you can cancel your PMI. Remember, you can only cancel your PMI when you have paid off a certain amount of your loan balance. The longer it takes for you pay off your loan, the longer you will be paying for PMI.

Unlike life insurance, the value of your payments cannot be passed on to your heirs. PMI is intended to protect the lender; therefore, only the lender directly benefits from its existence.

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