Home Economics: A Look At PMIs

by Mia Bolaris-Forget (Staff Writer NYCityWeddings)

We’ve all heard about how hard it is for young couples to start out and “make it” here on Long Island. But, truth be told, the price of homes, property taxes and cost of living make it hard for not only newlyweds, but almost anyone from college grads to families and seniors to live comfortably, especially if they are looking to rent, invest in their first home, a new home or improve the home they have.


And, when it comes to making your first property purchase one thing you’ve likely been “warned” about is Private Mortgage Insurance, more commonly known as PMI.

But, I’m sure that like most of us you’re wondering, what is it and what is it that I should be looking out for?

PMI is not for everyone, just those (homebuyers) who are planning on or can only afford to put down less than 20 percent of the purchase price on their new home. What it does: it gives the lender confidence and protection on such a small investment, but for the buyer, it can mean an increase in mortgage payments they weren’t expecting.

Still, experts say the added amount is not likely to deter “investors”/homebuyers from moving “full speed ahead”. But, they note that other than increasing your monthly mortgage dues, this insurance does nothing for you.


A PMI’s primary purpose is to protect the bank/lender, offering them security and incentive to continue to conduct business with other homebuyers with less to offer as collateral toward a house. And, it gives those who only have the minimum 3% down-payment required an opportunity to make such a “large” purchase, with very little vested, and often in instances where the investor would otherwise be out of luck.

Still, experts add that before signing on the dotted line, you may just want to do your homework. For starters, it’s important to know that while PMI’s are considered “standard” for low down-payment investors, not every lending institution will insist on one, so you’ll want to look around. And, experts suggest discussing your options and alternatives with your realtor; including making PMI premiums a tax-deductible item, but be careful about potential cons.

Going however with a standard loan (compared to an FHA loan), will frequently get you off the PMI hook at or about 20 percent equity. But, new homebuyers should note, that it could take a significant amount of time until your reach that 20 percent mark. In fact, according to statistics, it’s more likely than not that most will have moved out and on to a newer home before they even get close to that milestone marker. And, if you ask to have your PMI premiums added to your loan’s interest rate, you won’t see a change in your monthly mortgage payment, even once you’ve reached 20 percent equity.

Experts add that if you however fall into the majority, you can expect to change places within five to seven years or are likely to refinance, making the PMI a feasible and practical option, at least form a tax perspective. Furthermore, if you live in a prime area where home costs escalate consistently and rapidly, you can expect to hit your 20 percent equity mark much sooner.

And, some good news includes a few “loopholes”. According to some “legislation”, homebuyers who too out a PMI on or after July 29, 1999 are suppose to receive an instant cancellation of their PMIs once they reach 22 percent equity. Also, as per the Homeowners’ Protection Act of 1998, homeowners have the right to ask for the cancellation of their PMIs before hitting the 22 percent equity mark, while those with FHA loans can request the cancellation once they hit the 20 percent equity mark.