Many people opt to get Private Mortgage Insurance if they can't afford to pay the required 20% down payment for buying property. Private Mortgage Insurance, or PMI, was created to protect lenders in the event that buyers fail to make payments on loans and mortgages. But whilst it is an attractive option for many, you should first understand PMI and its drawbacks before deciding to go for it.
1. Although PMI rates and premiums vary depending on your credit standing and interest rates, you can expect to pay an additional 1% on your interest rates for mortgage. This might prove to be a lot heavier than you expect.
2. If you're not careful, you might find yourself paying PMI for more years than what is needed. Some lenders might try to squeeze every pound from you.
3. Private Mortgage Insurance is not tax-deductible, not like mortgage interest.
4. PMI is an additional monthly expense that all goes to the protection of the banks and lenders, not to you. It may seem like throwing money away.
Private Mortgage Insurance looks tempting for those who think the 20% down payment required when buying property or a new house is too expensive. But before you decide on PMI, take note of the drawbacks mentioned above. PMI might prove to be more of a bane than a boon.