When working out the costs of purchasing and then repaying a real estate purchase, many of us find that we don't have much of an idea of how much is PMI until we receive the mortgage documents from the lender. It would be nice to have access to that information a bit sooner, so that you are able to make an informed decision about your lender, but also about whether you will be taking out PMI. You see the cost of PMI is not inconsiderable, especially when calculated over the life of the loan, which is for how long people generally pay PMI (which is unnecessary, but more about that another time)
Background - what is PMI
Let me just make it clear at the outset that private mortgage insurance has nothing to do with private mortgage lenders. Private mortgage insurance is the way that all lenders seek to protect their investment (the mortgage you take out) from any losses (you defaulting on the loan). Generally, most lenders will require you to take out PMI on real estate finance provided where the value of the loan is more than 80% of the value of the subject property.
Unfortunately what began as a way for financial institutions to protect their investments has turned out to be (in a lot of cases) an unecessary burden to bear. By making the imposition of PMI an arbitrary reaction to a number on a screen, it would be better to assess each case as it arises and make an educated decision on whether PMI is appropriate in the circumstances. Having said that - as lenders are often unwilling to get creative, it is left to us to figure out creative ways to avoid paying PMI on real estate purchases.
If I wanted to find out how much would my mortgage payment be then it would pay to have some specific information about the current cost of PMI and of course details such as loan interest rates, loan terms and repayment frequency and things like that. Considering the calculations you will be making, it's probably best to grab a pen and paper so you can properly map out all scenarios.
Ways to avoid paying PMI
While PMI is a burden, there are ways to avoid paying PMI on your mortgage. The most obvious is to avoid crossing the 80% threshold of money you are borrowing in relation to the value of the property itself. One way to do this, and it's a little obvious really, is to set your sights a little lower and buy a cheaper property - or you could just negotiate tougher.
Another great way to avoid paying PMI is by borrowing the 80% and avoiding the PMI requirement and obtaining the balance of the money required to finalize the purchase through other means. You can get really creative here too - cash advances on credit cards, loan from friends or even na unsecured personal loan from another financial institution. All these methods are legitimate ways to avoid paying PMI on your mortgage.
Naturally there will be a cost involved in pursuing these options, but it may well be worth your while. For all the time that you are paying the extra expense of PMI, you may find that it is actually cheap to pay a higher interest rate and avoid the need for PMI altogether. So the next time a lender tells you that taking out PMI is unavoidable, think again.