There are many types of mortgages in the real estate industry, and PMI (or private mortgage insurance) is required for most. PMIs are by their very nature, designed to protect the lender instead of the buyer (you). Generally speaking, PMIs are mandatory to have if you want to buy a home using a conventional loan.
Talking about specifics, putting less than 20% down on the purchase price of the home will usually result in a PMI being charged. This is because it gives protection to the mortgage company, in case you default or cannot pay back the loan. Sometimes private mortgage insurance is collected in a lump sum, and other times it can be paid in installments depending upon the insurance company.
Why You Need to Avoid a Private Mortgage Insurance
It should be pretty apparent by now that having private mortgage insurance is not an ideal situation for you. This type of insurance has many notorious traits that make it undesirable, including its high cost, duration, non-hereditary nature, and it’s not tax-deductible.
First of all, the cost of PMI is relatively higher, compared to other types of insurance. They typically cost between 0.5 and 1 percent of the entire loan amount yearly . Considering the median house prices nowadays, this has the potential to become a significant amount.
Moreover, private mortgage insurance is non-hereditary; in other words, your spouse or your kids will not receive any monetary compensation if you pass away. This reinforces the fact that only the lenders benefit from the insurance, as they are the ones who will be the sole beneficiary of this financial transaction.
FurFurthermore, PMI has the potential to be active for a very long time, even longer than you intend it to be. This is because some lenders impose their contracts for a designated period even if you have met the 20 percent threshold. Therefore, it would be essential to go through the PMI contract and understand all of its clauses.
Another disadvantage of a private mortgage insurance is that they are not tax-deductible, the 2017 Tax Cuts and Job Acts made PMIs this way. the 2017 Tax Cuts and Job Acts made PMIs this way. Therefore, this insurance will by no means cut down your overall costs as your tax liability will not change.
Most insurances provide people the leverage to cancel them, but private mortgage insurance does not work this way. There is a long and arduous process to exempt yourself from making even your monthly financial obligation. Typically, you have to write a letter requesting the monthly cancellation, and this can take months to get processed. At the AFTHA Program, we help thousands of clients each year, American families who are struggling hard with this kind of situations, our experts are ready to match your profile with the best lenders right in your state. Want to know how? Call now to (833) 295-6128, or write us an email at firstname.lastname@example.org, we’re proud to serve hard-working people like you.