Tip
You may be able to cancel your monthly mortgage insurance premium once you’ve accumulated a certain amount of equity in your home. Learn more about your rights and ask lenders about their cancellation policies.
Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise be able to get. But, it may increase the cost of your loan. And it doesn’t protect you if you run into problems on your mortgage—it only protects the lender.
Lenders sometimes offer conventional loans with smaller down payments that do not require PMI. Usually, you will pay a higher interest rate for these loans. Paying a higher interest rate can be more or less expensive than PMI—it depends on a number of factors, including how long you plan to stay in the home. You may also want to ask a tax advisor about whether paying more in interest or paying PMI might affect your taxes differently.
Borrowers making a low down payment may also want to consider other types of loans, such as an FHA loan. Other types of loans may be more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions.
You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.
Ask lenders to show you detailed pricing for different options so you can see which option is the best deal.
Warning: Private mortgage insurance protects the lender—not you. If you fall behind on your payments, PMI will not protect you and you can lose your home through foreclosure.