6 Benefits of Private Mortgage Insurance (PMI) You Can Count On

In the past, putting down less than 20% on a house and requiring mortgage insurance held a negative stigma. Times have changed. In today's surging real estate market alongside escalating rents, many experts have perfected how members of our community can use mortgage insurance (PMI) to their benefit. When used correctly, mortgage insurance provides families greater flexibility and buying power. Before signing another apartment lease, consider how mortgage insurance benefits could help you buy a house and save money. 


 

Want to watch a video about "The Buying Power of PMI" click here.

 


What is Mortgage Insurance?

While putting down less than 20% on your new home may not be your ideal goal, mortgage insurance is available to help you bridge the gap so you can still get the home you've been waiting for. Previously referred to as Private Mortgage Insurance — or PMI —this type of insurance is designed to protect lenders in the event a borrower defaults on their mortgage. 

 

While lenders gain added security, borrowers who utilize Mortgage Insurance can benefit too. Borrowers can access more funds (a larger mortgage), allowing them more options when searching for their dream home. So, rather than viewing Mortgage Insurance as a negative aspect of buying a home, it can also be a strategic tool to further your goals.

 

Factors That Influence the Cost of PMI

Lending industry professionals often refer to the MI calculation as the "loan-to-value" ratio. That's a technical way of speaking to how much you put down versus how much the property is worth. But the cost of MI also depends on the type of home loan you qualify for, as well as the size of the down payment, your credit score, and other aspects of the transaction.

 

In the past, putting down less than 20 percent on a house and requiring mortgage insurance held a negative stigma. Times have changed. In today's surging real estate market alongside escalating rents, many experts have perfected how members of our community can use Mortgage Insurance (PMI) to their benefit. Mortgage Insurance provides working families greater flexibility and buying power when used correctly. Before signing another apartment lease, consider how mortgage insurance benefits could help you buy a house and save money. 

  

 

6 Benefits of PMI for Home Buyers

Putting a 20 percent down payment was once considered the traditional way to buy a home. But rising real estate costs and other economic factors have many potential home buyers rethinking this approach. Although the idea of taking on an extra home-related expense may seem counterproductive at first, a deep dive into the benefits of PMI may prove otherwise.

1: Mortgage Insurance Breaks the Down Payment Barrier

Putting a 20 percent down payment was once considered the traditional way to buy a home. However, rising real estate costs and other economic factors have many potential home buyers rethinking this approach. Although the idea of taking on an extra home-related expense may seem counterproductive at first, a deep dive into the benefits of MI may prove otherwise.

2: PMI Can Open Up More Housing Options By Making Payments Affordable

Following the strict 20-percent down rule dramatically restricts how much house you can afford. For example, you will require $20,000 for every $100,000 of borrowing. But with just $20,000, you may be eligible to increase how much house you can afford.

mortgage insurance chart

If you are ready to stop throwing money away on rent, Mortgage Insurance, matched with an affordable mortgage, maybe the perfect combination you need to get the home you have always wanted.

 

3: PMI Is Not Permanent

For people buying a home in Massachusetts, the added expense of Mortgage Insurance could be short-lived. Lenders must automatically terminate PMI when your loan balance reaches 78% of the original value of your home (or 22% equity is achieved.) However, you may not have to wait until then - if the current value of your home increases due to home improvement or market conditions - borrowers can request to cancel PMI with only 20% equity.   

Fast-rising real estate values in the Commonwealth can quickly shrink the difference between what you owe and the current fair market value. Once you have 20% equity in your home, you can request the mortgage insurance be dropped. Most lenders will require an appraisal (at a cost to you) to cancel PMI.

If you currently pay Mortgage Insurance, periodically check your home's worth to determine the loan-to-value ratio and see if you can remove this additional expense.   

 


 

If you're ready to become a homeowner, explore your options with our complete guide:The Complete Homebuying Checklist: 10 Steps to Buying a House

 


 

4: Mortgage Insurance Can Help Homebuyers Refinance an Existing Mortgage and Save

There are numerous situations in which members of our community took out high-interest loans to purchase their first home. Issues such as poor credit scores, repayment blemishes, and low incomes restrict homebuyers from some of the best mortgage products. If you've diligently paid your monthly installments, refinancing with less than 20 percent equity in the house could make sense.

Consider using a mortgage calculator to determine whether a lower interest rate and MI would reduce your out-of-pocket costs. It may even be possible to turn some of your equity into cash and use the funds to make home improvements. By contacting a Middlesex Federal Home Loan Specialist about your unique financial situation, you can make informed financial decisions that can save you money.

5: PMI Can Help You Stop Renting

It is common knowledge that renters pay more of their monthly income on housing expenses than homeowners. Renters once paid around 30 percent, but the housing shortage and other factors have apartment residents paying upwards of 40 percent of their income on rent alone. That stunning waste of money could be used for building equity in a single-family home. By employing mortgage insurance, renters can stop paying rent and start accumulating more personal wealth.

6: Middlesex Federal Makes Mortgage Insurance Easy to Understand

While our team of experts works with Mortgage Insurance daily, we understand it can be new and overwhelming. We take the time to simplify mortgage insurance and every other step of the home-buying process. Whether this is your first, second, or investment home, we are ready to help you achieve your goals.

 

Questions about Mortgage Insurance? We Can Help!

Everyone deserves an opportunity to realize the dream of homeownership, and Mortgage Insurance can be a valuable tool to get you approved for a home loan. If you are ready to stop paying rent or want to see if homeownership is possible, we are prepared to help! Get in touch with one of our Home Loan Specialists today! 

If you enjoyed learning about Mortgage Insurance and want more tips, be sure to review our comprehensive guide, "Complete Home Buying Checklist: 10 Steps to Buying A House!"



Back to Blog

Related Articles

Buying a House Checklist: It's Not as Difficult as You Think

If you dream of owning a home of your own but are intimidated by the home buying process, don't be!...

10 Crucial Steps for Every First-time Homebuyer

Owning a home of your own is part of the American Dream. But a first-time homebuyer must take...

12 Do's and Don'ts for a Successful First Time Home Buyer

The process of shopping for a home, negotiating a purchase price, applying for a loan, and closing...