What is PMI?
Private Mortgage Insurance, or “PMI” is to cover the bank’s interests when your down payment is less than 20%. It used to be up until the mid 1960’s (1958, technically, but practically the 60's) that you needed to “save and put together a down payment” when you wanted to buy a house.
Keep in mind that when you have, say, a house worth $250,000, but your mortgage balance is only $150,000, then you basically have $100,000 of your money locked in the house. The bank knows you’ll make all your payments on time, because if not, they’re getting a chunk of that $100,000 + the $150,000 you owe them.
When you buy or refinance a house and don’t have a down payment, there’s less protection for the bank, since you have nothing, or not much to lose by letting the house go if times were to get tough.
Therein lies the problem – because when banks take back houses, they’re rarely in pristine move-in condition. Usually the power has been shut off, the refrigerator ice melted all over the floor and ruined it, the place needs a good cleaning, and they need to pay a realtor to sell it, or an auctioneer. Since they need to sell in a hurry, they rarely get top dollar – so they lose money on those loans.
So they invented “mortgage insurance”. Note there are actually a few forms of PMI – there’s “MMI” or “Mutual Mortgage Insurance” or LPMI (“Lender Paid MI”, which is then added to the interest rate) or TAMI (Tax-Advantaged MI).
What does it all mean?
As of 2007, it is now tax deductible - for the first time in history! Note PMI was _always_ tax deductible for rental property.
We’ll show you whether it’s cheaper to do a “piggyback” loan, i.e. an 80-10-10, or 80-20 combo, or whether one of the forms of PMI is cheaper. Bottom line, you’ll get the best structure for your needs – that’s our job to know!
If you have some flexibility in your down payment and are just looking for “the sweet spot”, it all depends on your file. Tell us a bit about it, and we’ll be happy to help!
PMI is only for loans above 80% / less than 20% down.
Whether or not PMI is right for you requires a bit more data -
tell us just a bit more and we'll give you the options. |
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