Private mortgage insurance has received a pretty nasty reputation in the mortgage world. Whenever the subject of private mortgage insurance is brought up, there is typically a negative connotation surrounding it. Of course no one wants to pay an extra couple hundred dollars each month and there are drawbacks to paying for private mortgage insurance. However, there are also benefits to having private mortgage insurance than can outweigh any negativity.
1- Don’t have to wait to buy.
The biggest benefit to private mortgage insurance is that you do not need to wait to buy a house. It can take over a decade to save up a down payment of 20% or more. During that time you are spending a large amount of money each month in rent and house values and prices are rising. Private mortgage insurance will save you from years of waiting and paying money in rent.
2- Building equity while paying for insurance.
While owning a home the value of the home should begin to rise as time passes. You would be missing out on the increase in equity if you decided to keep renting. Also, you may be able to stop paying private mortgage insurance sooner by getting an appraisal done and proving that you have enough equity in the home. This rise in equity will work in your favor over time.
3- Don’t have to pay it forever.
Private mortgage insurance is only required to be paid until the loan reaches 80% loan to value. This means that after some time has passed and you’ve paid down your loan balance you won’t have to pay for your mortgage insurance any longer.
4- Can take advantage of lower interest rates.
Mortgage insurance allows homebuyers to take advantage of lower interest rates. If they wait to save 20% for a down payment, they will miss out on the historic record low interest rates. Ultimately the lower rates can save them hundreds of dollars each month. This savings in rate can justify the short term payment of private insurance. Once they are done paying for the mortgage insurance they’ll see even greater savings each month.
5- Avoid inflation.
As years pass inflation causes the prices of homes to rise. If it takes 10-15 years to save up a big enough down payment families can end up spending much more on a home. By paying mortgage insurance premiums for a few years they save more than if they pay an extra $30,000 or more for a home.
6- Tax deduction benefits.
Homeowners can use the interest they pay on a home as a tax deduction. The mortgage interest deduction can put them into a lower tax bracket and lowers their tax liability. If someone decided to continue saving for a 20% down payment instead of purchasing a home with PMI, they would forego receiving this tax deduction.
7- Stimulates the housing market & economy.
This is a benefit that isn’t passed on directly to you as the consumer but benefits the economy overall. Private mortgage insurance creates a boost in the housing market by allowing many to enter into homeownership. It also creates thousands of jobs. This insurance is a part of a thriving economy.
For expert opinion and guidance, contact Aceland Mortgage.