"Mortgage rates remain elevated, causing many prospective buyers to hesitate, especially with the challenge of saving for a 20% down payment. Private mortgage insurance (PMI) and lender-paid PMI offer alternatives but come with distinct considerations. PMI is a policy safeguarding lenders if a buyer lacks a 20% down payment, costing up to 1.8% of the loan amount annually. Lender-paid PMI involves a higher interest rate in exchange for the lender covering insurance costs."
"While PMI can be canceled upon reaching 20% equity, LPMI stays for the loan's duration. PMI has tax implications, while LPMI might be beneficial for short-term homeowners. Calculating the costs of PMI versus LPMI for varied scenarios can help determine the most financially sound option based on the buyer's long-term plans and financial situation, with PMI potentially being more cost-effective for long-term ownership."
Mortgage rates remain elevated, making saving a 20% down payment difficult and deterring many prospective buyers. Private mortgage insurance (PMI) protects lenders when buyers put down less than 20%, typically costing between 0.5% and 1.8% of the loan annually and increasing monthly payments. Lender-paid PMI (LPMI) shifts the insurance cost into a higher interest rate paid by the borrower, and it remains for the life of the loan. PMI can be canceled once the borrower reaches 20% equity and may have tax-deductible mortgage interest benefits for qualified buyers. Comparing total costs over the expected ownership horizon clarifies whether PMI or LPMI is more cost-effective.
Read at SFGATE
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