Is It Worth It To Pay PMI?
Is It Worth It To Pay PMI?
One thing that’s a concern for home buyers right now is if you have less than 20% down payment you have to pay mortgage insurance or PMI.
What is mortgage insurance? This is basically an insurance policy that ensures the lender in case you were to foreclose or default on your mortgage, that they’re going to be able to at least recover how much they have invested in the mortgage.
This is an insurance policy that you pay for in the form of your mortgage insurance payments, but only the lender benefits. You don’t benefit from this insurance policy, except for the fact that you do benefit from becoming a homeowner. It’s really hard these days to save up 20% down payment, which is the threshold for when you don’t need mortgage insurance. If you have 20% or more down, no mortgage insurance. Especially with inflation hitting us so hard, it’s even harder to save money. If you’re holding out to save 20% down, you might be saving for the rest of your life, you may never get there.
Instead, mortgage insurance offers an opportunity to get your foot in the door, become a homeowner and start building equity so you can get to the point where you have 20% equity. My wife and I, we had on our first couple houses, we had mortgage insurance for a solid, I would say, six years, something like that. We bought right during the housing crisis. So it took a while for our home to go up and value and for us to pay down our mortgage. So for us, it benefited incredibly and now we’re in a position where we have over 50% equity in our home. So, it’s something that can be a benefit to anyone and it’s not something to be afraid of or to avoid at all costs. It’s unfortunately a necessary evil if you don’t have a 20% down payment. It can help you build significant wealth over time by accepting the mortgage insurance.
The good news is on a conventional loan. After two years, if you have at least 20% equity you can apply to get rid of the mortgage insurance. So that’s the good news, you don’t have to have it forever. So call me if you want to look at your options, we can look at mortgage insurance options. There’s also ways to not have mortgage insurance with 20% down. Now, the interest rate’s a little bit higher but you can also look at something like that to avoid that monthly payment. And we can analyze all those options together. So give me a call, text or email, and have a great rest of your day.
