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PMI isn’t just an inconvenience – it can harm buyers


CHERRY HILL, N.J. – June 2, 2014 – Research released by TD Bank and conducted by Angus Reid Public Opinion finds that 37 percent of buyers who purchased a home in the past 10 years – 43 percent of those within the last two years – required mortgage insurance (MI). Of those who required PMI (Private Mortgage Insurance), 65 percent said that it left them paying a higher monthly mortgage payment than they originally expected.

The study, an extension of the 2014 TD Bank Mortgage Service Index, surveyed more than 2,000 Americans. The findings indicate the growing impact that PMI – often required when homebuyers can't make a 20 percent downpayment – has on mortgage payments.

An average PMI payment costs about $100 per month, making it a significant expense for many borrowers who already don't have enough to make a minimum downpayment. To make matters worse, FHA loans now require PMI for the life of the loan, which considerably increases the total cost of homeownership.

"PMI has had a definitive impact on many homebuyers – including making them rethink or delay the purchase of a home in light of not being able to meet monthly mortgage payments," says Michael Copley, executive vice president of retail lending with TD Bank. "While FHA loans may be available, homebuyers, especially first time buyers, may not realize the options available to them that don't require PMI insurance."

According to Copley, one example offered through TD Bank's Right Step program calls for only three percent down and does not require PMI. Prospective buyers should meet with a lender or financial institution to find a loan solution that meets their needs and monthly budget."

Other survey results

  • Twenty-seven percent of those who purchased a home within the last 10 years felt that PMI costs impacted the home they purchased. For those who purchased a home in the last two years, that number increased to 35 percent.
  • Fifty-three percent of respondents reported a negative impact because of the additional cost of PMI. Over four in ten cut back on small and daily purchases and/or larger household purchases.
  • 43 percent of Millennials (ages 18-34) did not make a 20 percent down payment and required mortgage insurance compared to 37 percent of Gen X-ers (ages 35-54) and 23 percent of Baby Boomers (ages 55 and older).
  • Most respondents felt that PMI's impact left them paying more than expected – 60 percent of Millennials, 60 percent of Gen X-ers and 58 percent of Baby Boomers.
  • Compared to Gen X-ers and Baby Boomers, Millennials requiring PMI felt most impacted in home purchasing decisions, such as delaying the purchase of a home or purchasing a smaller home (30 percent vs. 18 percent for Gen X-ers and 14 percent for Baby Boomers).
  • Forty six percent of Millennials said they had to cut back on small daily purchases and/or cut back or delay larger household purchases due to the additional cost of PMI; 38 percent of Gen X-ers and only 26 percent of Baby Boomers experienced similar cut backs related to PMI.

© 2014 Florida Realtors®


Related Topics: Mortgages