Mortgage borrowers looking to cut down on monthly payments may find that making a single, upfront purchase of mortgage insurance is a good way to achieve this goal. Going this route, you won't have to pay every month for private mortgage insurance, or PMI.
This sort of arrangement is available on a conventional mortgage loan that requires private mortgage insurance, if you have less than 20 percent to put down for a down payment. It is not available with government programs such as FHA-insured loans, VA or USDA loans. Now that FHA insurance premiums have gone up, conventional loans look more attractive to many borrowers, making the single-payment PMI a more viable approach.
According to Christian Durland,
a senior mortgage adviser with Envoy Mortgage in Centennial, Colo. "Eight times out of 10, if you run a proper analysis, the single-premium mortgage insurance always comes out as the less expensive option as long as you are going to be in the home for three or more years."
On a $200,000 mortgage with a 10 percent down payment, private mortgage insurance typically costs about $81.67 a month. With single-payment mortgage insurance, the borrower instead would pay an upfront premium of 1.37 percent, or $2,740. The total monthly payments would exceed the upfront premium two months shy of three years, for a break-even period of 34 months.
Upfront versus monthly PMI costs for a $200,000 mortgage