Good Reasons Why You Should Avoid PMI

Private mortgage insurance may sound like a great alternative if you’re thinking of getting a house but couldn’t afford to pay the 20 percent down payment. However, some people only have this option available, especially for new homebuyers. However, there are a lot of reasons why people should avoid getting this insurance as much as possible.

It’s Cost

The typical cost of a private mortgage insurance ranges from 0.5 percent to 1 percent of the entire mortgage amount per year. That would be a pretty hefty amount if you’re going to compute it. Let’s say you have a $150,000 mortgage, this means that the payment that is allotted to the PMI is $1,500 per year, or $125 per month- given that the PMI fee is 1 percent. However, based from the National Association of Realtors in cities like New Orleans, the average home price is about $230,000. This means that families who have mortgages summing to that could be paying almost $200 per month just on the insurance alone.

The PMI may not be Deductible

PMI or private mortgage insurance are considered to be tax deductible if the married taxpayer has an average gross income of less than $110,000 every year. Meanwhile, the threshold is $55,000 for married couples who are filing separately. This means that families who have a combined income that’s above $110,000 will not have reimbursed of their PMI. It would actually be much better to pay a larger down payment than paying the PMI.

Your Heirs will Acquire Nothing

Your families or spouse will get nothing from PMI. The private mortgage insurance’s sole beneficiary are the lending institutions. You will need to have a separate insurance policy if you want to protect your heirs and provide them with financial assistance upon your death.

You’re Only Giving Money Away

If you think that putting down less than 20 percent of the actual house price will save you money, you better think again. Not being able to pay the 20 percent down would require you to pay the mortgage insurance until the house equity is at least 20 percent. It could take some time for a homeowner to come up with the money since a portion of them goes to the PMI. Assuming that a couple owns a property worth $250,000. They have to pay at least $208 per month just for the PMI alone. That could have been $37,708 worth of payment within 10 years if they could have only paid the 20 percent down payment originally required.

Charges Will Continue

Some mortgage companies in states like Louisiana may require the homeowners to maintain the contract for a certain period of time. This means that even if they reach the 20 percent threshold, they will still be required to pay the mortgage insurance until they reach the end of the insurance term.