Mortgage insurance often gets a bad reputation, but it is not always a bad thing.
In some cases, trying to avoid mortgage insurance can actually cost a buyer more time, more opportunity, and more money than expected.
We recently worked with a client who was thinking about waiting until they had another 10% saved so they could avoid PMI, also known as private mortgage insurance.
At first, that seemed like a reasonable plan. Saving more money is usually a good thing.
But once we ran the numbers, the math told a different story.
Here was the breakdown:
• Purchase price: $750,000
• 10% down payment: $75,000
• 20% down payment: $150,000
• Extra amount needed to avoid PMI: $75,000
• Estimated PMI: $118 per month
• Approximate break-even point: About 53 years
In this case, the client would have needed to save an additional $75,000 just to avoid an estimated $118 monthly PMI payment.
When we compared those numbers, the break-even point was about 53 years.
That helped the client see the bigger picture.
Instead of waiting, they moved forward, and the transaction closed.
The Bottom Line
Saving is always smart, but saving for the right reason matters.
Before waiting to buy a home just to avoid mortgage insurance, run the numbers first. Sometimes the cost of waiting can be much higher than the cost of PMI.
Every situation is different, and the right answer depends on the full picture. If you are wondering whether it makes sense to wait or move forward, let’s look at the math together so you can make a confident decision.
Miguel Terrazas
Mortgage Planner/Planificador Hipotecario // NMLS #227518
