When home-buyers put down 10% or more on their mortgages, financing single premium PMI might make sense.
For example, let’s say someone is purchasing a home for $200,000 with 10% down. There are four different ways to structure the PMI:
- Pay the PMI monthly
- Buy out with Single Premium PMI
- Finance the Single Premium PMI into the loan
- Lender-paid PMI
It would cost $39 monthly for the PMI, and it would take a home-buyer seven years before the PMI would fall off.
Buying out the PMI is the cheapest option at an upfront cost of $1,656. If home-buyers go this route, they will never have to worry about paying PMI again.
But not everyone has the extra money at the time of closing to buy out the PMI. It might make sense for such clients to finance the $1,656 into the loan, which would still result in a lower mortgage payment than if they paid the PMI on a monthly basis.
Paying PMI monthly is the worst option for home-buyers in this scenario who plan to keep their mortgage for the entire seven years.