This is probably only a partial answer, but some of it has to do with the severance between the customer (in this case, the bank) and the guy who writes the check (in this case, you). When the person making decisions about how much value should be extracted from every dollar is not the same as the person feeling the bite of those extra dollars, the decision-maker is naturally going to be more profligate than he would were he spending his own money. In fact, this probably answers manhattan’s question, too. The reason that lower-cost PMI providers don’t enter the market is presumably because lower cost of premiums doesn’t add a lot of value for the bank. Since they’re not paying anyway, they’re more interested in efficient service, fast settlement of claims, and a significant financial cushion. These things cost a lot of dough, but why would the bank care about that. (Of course, a very seaching analysis whould show that lowering PMI premiums would lessen the incidence of default, but not very much I bet.)
Typo of the brain, my bad. Should be 80/15/5. 5% down + a 15% second to make the 20% “down” so the primary mortgage is 80%, thus no PMI.
Thanks for the heads-up rackensack. The seller agreed to pay $4000 in closing, so I was thinking I hadn’t ponied up enough this year for an itemization to be to my advantage. But I’ll look into it for sure before the taxman cometh.
I agree with the fact that from a consumer’s point of view that PMI sucks! What is particularly annoying is that it is regulated as part of the government’s involvement in the mortgage industry. I bought my house 3 1/2 yrs ago with 10% down. SInce then, I have paid between $100 and $200 extra per month on the principal and have never been late. When I called my mort. holder to see if I could negotiate PMI away, I was informed that it was regulated by the gov’t and there was no discretion on the bank’s part. This sucks! A good customer with a good track record ought to be given a break if he has earned it. WTF??
However, from a practical standpoint, the banking industry is much more willing to loan to younger, less wealthy customers who will make good customers if there is less risk. So, therefore, it is hard to argue with the existence of PMI as a tool of the industry.
What I want to know most of all is what the default rate is for people with less than 20% down? Is it so high that it justifies the ostensibly sky-high rate for PMI. As the OP mentioned, term life is much less for alot more coverage. The only reason for this is that is must be more likely that you will default on your mort. than you will kick the bucket. I would like to know about this ratio. I have always felt that there is really no competition for PMI, so you are at the mercy of your lender.
I have one word for you, buddy: refinance. If your lender isn’t giving you the right answers, or trying to screw with you, remember that there are plenty of fish (and some sharks) in the lending sea.
Besides, if you bought 3 1/2 years ago, you will most likely be able to refinance at a lower rate, saving you quite a bit of cash, or shortening the term.
I don’t think this is the right move though. Currently PMI runs me $46.00 per month. I estimated I will have 20% equity by the end of 2002 - costing me about $650.00 is additonal PMI. Further, my rate right now is 6.5% because I bought points when I started the mortgage. So, the costs of refinancing don’t outweigh the PMI and I am not sure that I can do much better than 6.5%. Thanks for the advice though. I looks, however, that I am going to have to suck on PMI for another year.
I think they are lying to you thermalribbon, I bought my house this year with only 17% down and I don’t pay PMI. I did fianance the mortgage through my credit union (HPCU). They said as long as I buy a product they offered (30 year 5/1 arm), I would not require it. If I wanted a mortgage they did not offer (30 year fixed through Fanny Mae), I would have to pay it.
If it is regulated by the Gov’t, how did I get around it.
The problem with your analysis is that you can’t generally count on your house appreciating that much. I’ve been a homeowner for 16 years, and the value of my house has appreciated in the last two or three, but in the first 13 or 14 years, the value depreciated. It all depends on the market.
In general, you are correct. In our specific case, we bought in a neighborhood where house values had been increasing very near or above 10% per year for five years running. We also bought at a time when the local and national economy was very good, local unemployment was nearly nonexistant, and interest rates were low. So we had a choice: either buy now with 5% down and hope that prices continued to rise, giving us a comfortable equity cushion, or continue to save for a larger down payment, hoping that our savings could keep pace with the housing market. The former seemed like a far better bet than the latter, although it did entail some additional risk.
My original statement was in response to pkbites’s claim: “What the hell are people doing buying a house without the lousy 20% down in the first place? If you can’t come up with 20% you’re buying a house you can’t really afford!” I wanted to point out that, although he might be correct in some specific cases, in other cases it makes sense to take a small percentage risk (buying with a small down payment) in the hope of saving a large amount of money.