Downsides Of Private Mortgage Insurance (PMI)

If you are planning to buy a home and you are not able to pay 20% down for a conventional loan, you will likely be unable to afford the 20% down payment. In this situation, you will have to buy Private Mortgage Insurance (PMI). You may think “private mortgage insurance” is a good idea. But it’s not. At least not for you. Why? You probably think of insurance as something you pay for that protects you. Private mortgage insurance (PMI) is a different story. As a homebuyer who has a non-conventional loan, you will need private mortgage insurance. However, the PMI is for your protection and benefit. Don’t misunderstand. PMI has its merits, but you should try to avoid paying PMI if possible. These are the top three reasons:

There is no family benefit

A life insurance policy ensures that your family receives the benefits of any monies paid into it in the event of an unfortunate event. PMI is different. Your family does not get any PMI if you are unable to pay your mortgage payments. There is no grace period or payment of PMI funds. You/your family members will also lose your home if you or they are unable to pay the mortgage (or PMI) payments.

It’s like being tethered to a ball & chain

PMI is not something you can stop paying for when you no longer want it. If you are required to pay PMI, that’s the requirement of your mortgage. PMI terms will always be in place to decide when PMI will cease. While some mortgage lenders in Nashville will allow PMI to end once there is a certain amount of equity in your home (20%+ most of the time), others will insist that PMI payments are made for a set period of time regardless of how much equity you have. To cancel your PMI, you will need to go through the PMI company of your lender once you have met the PMI-related terms. This means that you can’t get rid of PMI until your PMI company or lender releases you.

The Opportunity Cost is High

While a home is considered an investment, the PMI payment is a payment. It is not an investment. You can get a loan without having to pay PMI. This means that the money you spent on PMI could be used for investment in something that could yield interest or other financial returns. Consider that you are interested in a mortgage and required an annual PMI payment of $1,500. That payment would be money that was spent after it was paid. You could also save that $1,500 and invest it in mutual funds to make more money. This sounds better than making a payment.

Having PMI isn’t necessarily bad. It’s just not recommended. Many people can’t afford to make the 20% down payment necessary for a conventional mortgage. PMI allows homeowners to purchase a home that they otherwise would not be able to afford. If homeownership is your goal, it is better to own a home than to pay a mortgage with PMI.