One of the biggest unexpected expenses when it comes to getting a new mortgage is often the PMI insurance. PMI insurance, or Private Mortgage Insurance, is necessary to getting a loan. It insures that the lender is protected in case you stop making your loan payments. It is required by lenders if your down payment is less than 20% of the cost of the property or appraised value. Usually, one pays the PMI premium each month as part of the monthly mortgage payment.
The problem is that when people apply for a loan and do the math, they often forget to calculate the cost of PMI insurance, so their real borrowing capacity is lower than they might think. In a new survey released by TD Bank, it’s clear that 65% of homeowners made their monthly mortgage payment higher than they had expected. It also has an effect on people’s home purchasing decisions. People may choose to by a cheaper house to make sure they put more than 20% down so as to avoid the insurance payments. Almost 40% of borrowers say that having to pay the additional premium changed their monthly spending habits.
PMI is very common; almost 40% of borrowers who have purchased a home in the past ten years are required to pay PMI premiums. On average, the insurance amounts to amount $100 a month. That’s not a staggering amount, but it is just enough to make your mortgage payment higher than you think it will be.
You can read more about the study at TD Bank and in the article “Most Homebuyers Don’t See This Cost Coming,” on Credit.com.