The title really should be “does it make any significant difference whether the PMI is paid by the lender or the borrower?”. Firstly, what is PMI? It is the insurance required by lenders when a borrower does not put down 20% or more of the purchase price as a down payment. This insurance typically ranges between $50 and $300. I won’t go into the specific options and benefits of lender paid versus borrower paid insurance, such as available tax deductions; your mortgage originator is much more qualified to help you with all the details. My aim here is to highlight the starting point for considerations.

An example I read gave the following details:

Loan Example with borrower paid PMI:
$200,000 purchase price, 5% down payment ($10,000), 30 year fixed rate of 5.875%, Payment = $1247.42 (including PMI $123.50)

Loan Example with lender paid PMI:
$200,000 purchase price, 5% down payment ($10,000), 30 year fixed rate of 6.375%, Payment = $1185.35

The second example, where the lender pays the PMI, is at a higher interest rate but costs the borrower $62.07 less per month.

This might lead you to think that lender-paid PMI is the only way to go, but there are other consideration that you will need to consider, such as tax deductions as well as the important fact that borrower-paid PMI stops once the loan to value ratio drops below 80%, i.e. once you own a 20% equity stake in your home, whereas the higher interest rate of the lender-paid PMI continues.

If you’re already paying off your mortgage, it’s too late to change without refinancing, but, keep reading. What I describe below applies equally to you. If you are heading off to your mortgage broker for a new loan, this is one aspect that you will need to raise and make a decision on. Your broker will give you all the information and you’ll need to spend time working on all the different variables to determine which route is best. But what if your broker instead turned to you and said that for an additional closing fee of $3,500 you could cut almost $100,000 off your debt and reduce the time to pay it off by more than 11 years?

He will put figures in front of you relating to this alternative plan.

If you go with the borrower-paid PMI, you will save $92435.18 in interest and cut your term by 11.8 years
If you go with the lender-paid PMI, you will save $103,969.78 in interest and cut your term by 11.9 years.

He’ll tell you that these figures are based on the information he has and that they will change as he finds out more about your financial situation. But the figures likely won’t change dramatically.

He’ll tell you that, under normal loan conditions, it will take about 6-3/4 years to get to the point where you can stop paying borrower-paid PMI. Under the alternative he is suggesting, based on the borrower-paid PMI duration, he’ll tell you that after 7 years on the borrower-paid PMI route you will have paid down $52,931.12 in principal and on the alternative lender-paid plan, $51,961.25 in principal will have been paid. In both cases, with this alternative plan he is proposing, these amounts are more than double what you would have paid down using the normal method.

So, based on you not paying PMI after the 6-3/4 years, you will also accumulate a nominal amount of $34209.50. Add that to the $92435.18 and you will be saving $126,644.68. And then he’ll add to the pot when he tells you that under the recommended method, you will achieve the 20% equity stake, not after 6-3/4 years, but after 3-1/4 years, giving you another $5,187.00 dollars in PMI you won’t have to pay, bringing your total savings to $131.831.68

So, do you say, nah, I’ll just go with one of normal methods, or do you say, hell yes, I’ll go for the method that will save me $131,831 and 11.8 years off my original 30 year term. If you do, you’ll get a free analysis for you to see what the Money Merge Account system from United First Financial can do for you.

If you are already paying off a mortgage, you can can still take advantage of the Money Merge Account system, and no refinancing is needed. Saving time and money will help accelerate your mortgage and any other debts you might have.

Contact us now to receive your free evaluation and to see whether the Money Merge Account service can save you time and money.

Please note that the above figures are not necessarily exact and applicability to your situation will be determined by your specific details. We recommend that you take the results of your free evaluation into consideration with other factors and that you talk to applicable qualified persons during your decision making process.

United First Financial®, its agents and subsidiaries provide Internet web based software and support services. United First Financial does not provide accounting, tax, legal, real estate, mortgage, or investment advice. Interested parties should seek and consult with persons or entities licensed and qualified in those areas for advice relating to those matters. United First Financial is not liable or responsible for claims or representations made by any party which are not included in the Money Merge Account® Limited Guarantee.