All About PMI

Pro’s of Private Mortgage Insurance (PMI)
1. Allows for a lower down payment: PMI allows borrowers who can’t afford to put down 20% on a home to still qualify for a mortgage.
2. Can help borrowers get a better interest rate: Because PMI reduces the lender’s risk, borrowers with PMI may qualify for a better interest rate.
3. Protects the lender: If a borrower defaults on their loan, PMI helps protect the lender from financial loss.
4. Can be cancelled: Once the borrower builds up enough equity in the home, PMI can be cancelled.

Con’s of Private Mortgage Insurance (PMI):
1. Adds to the monthly mortgage payment: PMI is an additional cost on top of the mortgage payment and can add up to several hundred dollars each month.
2. Does not benefit the borrower: While PMI protects the lender, it does not benefit the borrower in any way.
3. Does not cover all types of defaults: PMI only covers the lender for specific types of default, such as foreclosure. It does not cover missed payments or other types of default.
4. May be difficult to cancel: Canceling PMI can be a lengthy process, and some lenders may require an appraisal to prove that the borrower has enough equity in the home.

In conclusion, while PMI allows borrowers to qualify for a mortgage with a lower down payment, it adds to the monthly mortgage payment and does not benefit the borrower directly. It is important to weigh the pros and cons of PMI before deciding if it is the right choice for you. If you do decide to get PMI, make sure to understand the terms and conditions, as well as how to cancel it once you have built enough equity in your home.