PMI (Private Mortgage Insurance)
Extra monthly cost added to mortgage if down payment is less than 20% of home value.
What You Need to Know
Private Mortgage Insurance (PMI) is an additional monthly fee that protects the lender (not you) if you default on your mortgage. It's required when your down payment is less than 20% of the home's value.
How PMI Works:
- Cost: Typically 0.5-2% of loan amount annually
- Example: $300,000 loan = $1,500-6,000/year in PMI
- Monthly: $125-500 extra per month
- Duration: Until you reach 20% equity or refinance
PMI vs. Wedding Spending: A $30,000 wedding could be a 20% down payment on a $150,000 home, avoiding PMI entirely. That's $125-500/month you could save or invest instead.
How to Remove PMI:
- Pay down to 80% LTV: Make extra principal payments
- Home appreciation: Wait for value to increase
- Refinance: When rates are favorable
- Automatic removal: At 78% LTV (federal law)
The Math: Avoiding PMI on a $300,000 home saves $1,500-6,000/year. Over 5 years, that's $7,500-30,000 in savings—more than many wedding budgets.
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-pmi-en-122/
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