should you pay pmi just marriedMoney is a difficult issue for many couples to discuss.

As I talked about in a previous video post, money issues are the #1 cause for strains on a marriage.

It brings out insecurities, fears, anxieties, feelings of competitiveness and many other not-so-great emotions.

But money is a fact of life, and taking control of finances is vital, especially in an uncertain economic climate.

For newlyweds, the issue of financial planning can cause enormous rifts. According to a recent Forbes article, 10 Ways Budgeting Saved My Marriage,

In the article it states,

“Over 50% of marriages end in divorce.  Over 50% of those splits cite financial disputes as the primary reason for the break-up.”

One of the greatest things a young couple can do together is to buy a home. It screams optimism for a shared future. But house payments and mortgages can also be a huge source of stress and cause divisiveness that can be irreparably damaging down the road.

Budgeting, saving, and investing can all be done in tandem. If you’re looking to buy a home and can only afford a down payment that’s less than 20 percent of the appraised value or sale price, you will also be required to purchase private mortgage insurance, also known as PMI.

What is PMI?

PMI is a form of insurance that protects the lender in a riskier loan situation. However, it’s often the only way you’ll be able to obtain a mortgage with a lower down payment because your lender is now protected against default.

Home buyers must maintain the PMI premiums until they meet a certain principal amount on the mortgage. Once the loan-to-value ratio hits 80 percent, you can notify the lender, who must then discontinue the PMI.

Should You Worry About PMI?

PMI is viewed as one of those unnecessary expenses and most people think they should avoid PMI like they should avoid somebody with the black plague.  Why pay for something when you don’t have to, right?

If you can’t put 20% down on a home, then you shouldn’t buy a house in the first place, some might argue.

There is some truth to that, but I think every situation is unique.  I’m sure every home buyer that purchased in Nevada or Florida around 2005 that put 20% down would spit in your face if you tried to argue with them that you should always put 20% down.

Most of those buyers are still underwater and they’ll probably never get their down payment back.

Do you think they get a flip about PMI? Doubt it.

Don’t Discount PMI

PMI is sometimes the only thing that will enable you to set your sights on your own home. And couples shouldn’t shrink from utilizing it. I’ve talked to number of first time home buyers that have been able to get a great buy on a previously foreclosed home.   These are absolute dream buys for any new couple just starting out.

There are a number of benefits that come with PMI, so it behooves you to sit down with your spouse, have a serious money talk, and see if paying PMI makes sense for you.


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Comments | 4 Responses

  1. says

    I’m personally in the ‘avoid PMI’ camp and I always have with all the mortgages and re-fi’s that I’ve done. It essentially adds a few interest points to your mortgage and the kicker is that it’s not tax deductible. It offers zero benefit to those taking on the mortgage.

  2. says

    I would encourage readers to take the time to look at your previous articles about PMI to get the full perspective. This article seems to be a balancing counterpoint to the other article about avoiding PMI. They are best taken together.

    Couples shouldn’t shrink from utilizing PMI, but they certainly shouldn’t utilize it lightly. It was good to start this article by recognizing the relational strain that finances have on marriage and by urging to families to consider these issues together deeply. Thanks for the post!

  3. says

    I advise against PMI in most cases but personal finance is personal and this isn’t always black and white. There are some situations where the benefit outweights the cost. Just be honest with yourself and your situation and hopefully the right answer will present itself.

  4. says

    One thing many people overlook regarding PMI is the fact that you can choose to pay a Single Premium, which is paid as a lump sum. Sure it is expensive, but is is almost always a better option than paying monthly mortgage insurance. Just another option that should be considered.

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