Did you know you have options in paying or avoiding Private Mortgage Insurance (PMI)? PMI is charged by the lender when you do not have 20% down payment. It is insurance to protect the lender (not you) against you defaulting on the mortgage, since you are considered higher-risk than a person that can put down 20% or more.

The amount you pay depends on the loan amount, down payment percentage, property type and your credit score. Here’s a general scenario for a $700k purchase price with 10% down payment, single-family home, 740 credit score –

Current 30 Year Fixed rate is 4.125% with no points (4.166% APR).

Mortgage payment ($630k @ 4.125%): $3053.29

Mortgage Insurance (.41% factor): $215.25

TOTAL: $3268.54

Now, to avoid this, you have a couple of options – the first is to opt for Lender-Paid Mortgage Insurance, and the second option is to split financing into an 80% 1st mortgage, and a 10% 2nd.


In this scenario, the PMI is absorbed into the interest rate. The current 30 Year Fixed rate for this option is 4.5% with no points (4.541% APR).

Mortgage (total) payment: $3192.12

PMI: 0

So in comparing you paying for PMI versus the Lender-Paid MI option, you would be saving $76.42/month. In addition, you should speak to your tax advisor, but interest on one’s mortgage payment for their primary home is tax deductible, whereas PMI is only tax deductible in some cases.


You would receive an 80% 1st mortgage and a 10% 2nd mortgage (equityline). For this $700k home purchase scenario, your 1st would be $560k at 4.125% with no points (4.170% APR). Your 2nd would be a $70k equityline based on Prime + 1.99% (so currently 6.24%).

1st Mortgage payment: $2714.04

Equityline payment: $364.00 (Note: this is interest only and rate/payment will fluctuate depending on Prime)

TOTAL: $3078.04

Split financing will yield the most savings; however, since that equityline rate and payment can fluctuate, there may come a time that the payment increases so much that one of the other two options may have made more sense. Your decision should be based on your goals/timeline for the home, and expectations of paydown. It is important to be realistic and to think through all the advantages and disadvantages of your options – something your mortgage professional should be able to discuss with you.