What is PMI and why do I want to avoid it?

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PMI is Private Mortgage Insurance and is tacked onto your loan payment if your Loan to Value (LTV) is over 80%. The reason why PMI is typically avoided is it is an additional expense that you will have to pay monthly and doesn’t count as interest paid, therefore providing no extra tax benefit to you. The way to get around PMI is to split your loan into a 1st and a 2nd, having the 1st mortgage that is 80% LTV, and the second at whatever is remaining. However, the interest rates on second mortgages are so high now, it has become cheaper to pay your PMI.

If you are currently paying PMI and you can get an appraisal high enough to validate that you are below 80% LTV, your lender will remove the PMI payment. You will have to pay the appraisal out of pocket, so you should do your research before paying the appraisal fee.

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PMI is currently tax deductible. The real disadvantage of it at this point is that it will lower the total amount you can borrow because it will be counted into the figuring of your debt to income ratio - if you're paying $80 a month in PMI, then it's $80 less that you can afford for a mortgage payment, which can work out to about another 14-15k on the loan (going by the current rates around 5%)."

dnfield at 12:15 pm Jan 1