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    What Is The Benefit of Paying Mortgage Insurance? | Fridays with Fred

    If you plan on buying a home and will be using a down payment of 3.5% to 5% you will be required to pay Private Mortgage Insurance but the big question many home buyers have is if there is any benefit that comes from paying Private Mortgage Insurance and the answer to this question is no.

    Private Mortgage Insurance Benefits the Lender

    Private Mortgage Insurance only benefits the lender because it protects them if you defaulted on your mortgage.

    Let’s say the thought of paying Private Mortgage Insurance isn’t exciting to you; the good news is that you have another option available in the form of Lender Paid Mortgage Insurance (LPMI).

    With LPMI your lender will pay the mortgage insurance on your loan but there is a catch, you will be faced with paying a mortgage interest rate that’s higher than what you might pay with a mortgage loan where you were paying Private Mortgage Insurance.

    PMI VS. LPMI

    The good news about Private Mortgage Insurance (PMI) is that it can be cancelled once you have built 20% equity in your home, but most mortgage loans have “seasoning requirements” meaning that you have to have the mortgage loan for at least 2 years before you can refinance it, and you will also have to be current with your mortgage loan payments or your lender may not cancel your PMI.

    Canceling Private Mortgage Insurance can take time but remember that you can make steady progress towards canceling PMI if you prepay your mortgage by as little as $50 per month.

    When it comes to LPMI you can’t cancel it since Lender Paid Mortgage Insurance is built into your mortgage interest rate so the only real way to get a lower payment is to refinance your mortgage loan.

    Consider All Mortgage Loan Options

    Before making a decision to choose a mortgage loan with Private Mortgage Insurance or Lender Paid Mortgage Insurance it’s best to consider all options available to you by speaking with a lender or mortgage professional.

    To learn more about Private Mortgage Insurance, or to view homes for sale in Southern California, contact Fred Sed Realty by calling us at (800) 921-9231 or connect with us online.

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