PMI, Mortgage Insurance, it comes with different names but it means the same thing: another cost to you. Private mortgage insurance can cost borrowers thousands per year. It can be frustrating because the value isn’t obvious to the client. There is a way you can avoid that extra cost, save money every month and forget about PMI.
What is PMI?
Private mortgage insurance is an additional insurance within your mortgage payment that protects the lender if a homeowner forecloses, the lender is guaranteed to get a percentage of their money back. The idea behind PMI is to help people buy homes with a smaller down payment while still lowering the risk of loss for the lender. The result is a monthly premium homeowners pay.
How to Avoid PMI:
We have some unique loan options that can help home buyers get around this unnecessary cost. Conventional loans can use something called Lender Paid Mortgage Insurance (LPMI). This is exactly what it sounds like, the lender will pay your mortgage insurance for you, but the trade off is a slightly higher mortgage rate. Depending on your credit this adjustment is not much. The higher rate often saves you more money than the monthly mortgage insurance does.
Why Would I Use LPMI?
The average home buyer will spend 13 years in their home before selling. This is a national average ranging from coast to coast. It’s important to consult your loan officer and gauge your 5-10 year plan to see where you will be. Normal mortgage insurance cancels around 10-11 years (if you make your minimum payments) and your payment will drop. If the lender pays your mortgage insurance, that will be your payment for 30 years. If your plan is to stay in the home for 20-30 years it’s probably more cost effective in the long term to pay the mortgage insurance yourself.
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