| Private Mortgage Insurance, or PMI, is one of the | | | | Here is a simplified example of the benefit of |
| most commonly misunderstood concepts in the | | | | structuring your mortgage with a 1st and 2nd |
| mortgage industry. So what is PMI? | | | | mortgage, thus avoiding PMI: |
| In short, PMI is an insurance policy for which you | | | | With PMI: |
| as the homeowner pay the premium each month, | | | | Sales price: $250,000 |
| but it doesn't benefit you at all. This insurance | | | | 1st Mortgage: $237,500 |
| policy insures the lender in case you don't make | | | | 2nd Mortgage: N/A |
| your payments and go into default. If this | | | | Principal and Interest Payment: $1424 |
| happens, PMI guarantees the lender that they will | | | | PMI Payment: $99 |
| get their money. | | | | Total Payment: $1523 |
| PMI is required on any mortgage over 80% of | | | | Tax Deduction: $392/ month |
| the appraised value or sales price of the home. | | | | Without PMI: |
| But wait a minute, you say, that's almost | | | | Sales Price: $250,000 |
| impossible these days. Who has 20% down to put | | | | 1st Mortgage: $200,000 |
| into a house? | | | | 2nd Mortgage: $37,500 |
| Well, the good news is that there is a way around | | | | Principal and Interest Payment: $1455 |
| PMI. The way to avoid PMI is to take out a first | | | | PMI Payment: $0 |
| mortgage for 80% of the value of the home | | | | Total Payment: $1455 |
| with a second mortgage to cover the difference. | | | | Tax Deduction: $405/ month |
| In this way, you will achieve a lower overall | | | | As you can see, structuring your mortgage |
| payment, and greater tax deductibility of | | | | properly can have a huge impact on your monthly |
| mortgage interest | | | | payment, tax write off, and bottom line. |