Can PMI be paid upfront?

[Anonymous]

I read somewhere that it could. Is this done at closing? Is there an advantage to doing this? Will it actually lower the monthly payment?

[64met]

I asked a similar question to my lender yesterday and the short answer is yes; however it is very expensive to do so AND depending on your income bracket is NOT tax deductible.  Might want to double check with a lender and or tax guy.

Good Luck!

[Anonymous]

Yes you can pay the PMI upfront at the closing.

[Anonymous]

Yes you...but why?  If you will never move from that house then maybe... but realize that the $200 (only an example) PMI payment is worth less in 10 years (inflation) and PMI is ONLY charged as long as your LTV is less than 80% (some want 75% right now)... housing cycles every 5-7 years and the slowdown started in August 2005 -- we are almost 3 years into the cycle.  worse case - you are looking at paying PMI for around 5 to 7 years until you can get under that 80% LTV... and if you sell you have 'wasted' the money.

[Anonymous]

You can pay it upfront, before doing so you should consider the tax advantage/disadvantages it may have and wether you feel it would benefit you to take a substantial amount of cash from savings to reduce your payment, or pay a higher monthly payment ea. month but keep some money in the bank. Either way you pay it out of pocket unless you only own the home for a couple of years it can be beneficial either way.  That's why the offer the choice, either coff up a certain amt upfront or pay a monthly premium each month until a certain time/LTV.

[Anonymous]

Is there a significant price difference between PMI paid up front and PMI paid over time?  I want to keep my monthly payment down, so I was considering paying PMI up front, then asking the seller to pay closing costs.

[ShanetheMortgageMan]

You can opt for a LPMI (lender paid MI loan).  With LPMI there is a price add on in trade for the lender paying your PMI for you.  You can either take that price add on as a higher interest rate, or pay an upfront fee (not upfront MI, but usually an origination or discount fee).  If you take how much it costs to buy out the PMI by paying the upfront amount vs. how much you'd pay in PMI over the portion of the term that PMI would be in effect for, it usually works out to be cheaper to buy out the PMI by paying the up front fee.

[Anonymous]

But, like someone mentioned before, you have to take into account the time value of money (i.e. $100 today is worth more than $100 5 years from now).   For example, if you assume we have a constant inflation rate of 3% then it is actually cheaper to pay $114 5 years from now than to pay $100 now.  Additionally if you factor in the opportunity cost of paying the PMI right now (i.e. what you could be doing with that $100 instead of paying PMI like a 3% savings account as a very low-risk example) you end up being able to handle an even larger payment down the road that would be cheaper than paying $100 today.

[ShanetheMortgageMan]

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Drachen wrote:

But, like someone mentioned before, you have to take into account the time value of money (i.e. $100 today is worth more than $100 5 years from now).   For example, if you assume we have a constant inflation rate of 3% then it is actually cheaper to pay $114 5 years from now than to pay $100 now.  Additionally if you factor in the opportunity cost of paying the PMI right now (i.e. what you could be doing with that $100 instead of paying PMI like a 3% savings account as a very low-risk example) you end up being able to handle an even larger payment down the road that would be cheaper than paying $100 today.

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True, all aspects must be considered.  The PMI buyout fee usually is about 1.25% of the financed loan amount (at a 95% LTV).  Let's say it's a $250k sales price, 5% down, resulting in $237,500 being financed... that would be a $2,968.75 fee.  Conventional mortgage insurance on that loan amount would be a .78% factor (given today's MI rates), or $154.38/mo.  On a 6% 30-year fixed mortgage, with regularly scheduled payments, that $154.38/mo in PMI would be going on for about 118 months - or $18,216.84 total in PMI.