Should you get private mortgage insurance?
April 27, 2018
Brown Mark (73 articles)

Should you get private mortgage insurance?

An important aspect that must be taken into account when applying for a Mortgage is the PMI, or the Private Mortgage insurance, which is required by most lenders. Why do I need to acquire private mortgage insurance? Is it beneficial to me, or does it mean a waste of money? Here we will try to answer these and other questions, so you can make the wisest decision when applying for your mortgage.

Is it necessary to get a Private Mortgage Insurance?

The option to acquire a Private Mortgage Insurance depends on your available funds to make the down payment. The required standard down payment is the 20% of the entire cost of the house you are buying.

If you have that amount of money you do not need to get a Private Mortgage Insurance and it is not recommended. Do not be confused, the Private Mortgage Insurance is not to protect your home or to protect you, it is really to protect the Mortgage Lender in case you fail to comply with the Mortgage fees that you have to pay and have to go through a process of eviction, after which the lender would have to pay for the necessary repairs to the house to sell it again. When you make the 20% of down payment you already cover the lender of the possible losses if this happens, therefore the insurance is not necessary, and they are not going to demand you to get one.

Is it mandatory to get private mortgage insurance if my down payment is below 20%?

When you are applying to a Mortgage loan with a down payment 20%, the lender will probably demand you to get the Private Mortgage Insurance. Even so, you are not really obligated to accept that condition. It is best to evaluate this and other possibilities that are also allowed by Lenders, as the Piggyback 80-10-10 Mortgage, but the benefits of any choice depend on your credit, the value of your home, and your available percentage for Down Payment.

To what extent is it beneficial to get the Private Mortgage Insurance?

The PMI will add an amount of money to your monthly payment during the time that you delay paying 20% of the total value of your home.

The Cost of Insurance is usually 1% of the total price of your home annually, but divided into monthly installments. This means that if your home cost $300,000, you will have to pay $3,000 annually but divided by 12, which means a payment of $250 per month.

This is the most economical option among all, and you could then recover a portion of that payment through the Tax Deductible.

The bad thing is that if you are a responsible person who pays all the installments of your Mortgage Loan, in the long run the insurance will represent an amount of money simply given to the insurer, considering that it is usually necessary to go through tedious processes in order to cancel the subscription to the insurance once you have already paid the 20% initially required.

Brown Mark

Brown Mark