Top 3 Benefits of Private Mortgage Insurance
Private mortgage insurance is a type of insurance guaranteeing the payment of a loan. Private Mortgage Insurance (PMI) has an important part to play. It provides an assurance to the lender against loss if defaults on the loan occur. It also helps the borrowers by enabling those with less money to have greater access to homeownership. When loan exceeds 80% of your (the borrower’s) home’s value, you are usually charged with this type of mortgage insurance. This is a kind of mortgage default insurance planned in order to ensure that the lender gets a portion of the outstanding balance of a loan in case a default occurs. This article provides you (the borrower) with information about the benefits of PMI.
3 Benefits of PMI
PMI is the affordable, predictable and tax deductible way to buy a home with a low down payment. Here are some benefits of Private Mortgage insurance.
1. Low down payment – A Private Mortgage Insurance helps you buy a home with a minimum down payment. It enables you to buy a home with a low down payment of as small as 3%. However, you are eligible for this low down payment if you qualify for a PMI. Therefore, a PMI saves you from paying 20% of the down payment that your lenders used to charge for loans without insurance. Thus, this helps you buy a home instantly without waiting to accumulate the large down payment needed to buy a home.
2. Save money – Even if you do not need to use a PMI because you have enough money to pay for the large down payment, you can still go for Private Mortgage Insurance as you can save extra cash. Taking out a PMI means saving money as you need less cash to close your loan and also a monthly premium plan may reduce closing costs even more.
3. More tax deductibility – Taking out a PMI indicates you are taking out a larger loan. Greater the loan more is the tax deductibility. The Tax Reform Act of 1986 stated that all consumer interest deductions should be eliminated except mortgage interest. PMI provides the borrower with this opportunity to show more deductible interest, while saving you more money.
Therefore, taking out a PMI can be advantageous. However, the PMI provides you with yet another benefit as it offers you the right to request cancellation of PMI. For cancellation of your PMI, you need to pay down your mortgage so that equals 80% of the original purchase price or appraised value of your home at the time the loan is obtained. You should also have a good payment history and you should not have a second mortgage. These are the other things that your lender will look into while granting you the cancellation for your PMI.