The Cost of Not Using Mortgage Insurance
August 5, 2016 / Amy Butler, Regional Vice President—Heartland Region
Let's consider the cost of not using mortgage insurance (MI) by looking at the benefits that can occur when buying a home with MI versus continuing to rent.
Picture this: It's 2011 and a first time homebuyer decides to enter the world of homeownership—welcome! Fast forward to present day... What did this investment yield?
- Well, likely home value appreciation. On average, a median priced single family home increased from $156,000 in April of 2011 to $185,000 in April of 2016. That's an 18.5 percent increase enabling the owner to earn $29,000 through a sale, according to Zillow.
- How about equity? Over the five year span and assuming a $156,000 home with a 4.25 percent interest rate, the borrower now has $14,390.78 of equity in his home.
Renters wouldn't have received either of those benefits. At a time when rents have been rising nationwide, another point to consider is that researchers estimate it can take as long as 12.5 years to save up the 20 percent down payment typically required on a conventional loan without mortgage insurance. Qualified borrowers have the chance to close the deal on a home faster with MI, without a towering down payment.
This infographic compares the cost of renting vs. buying over a 5-year period. Note how quickly savings can be realized when you buy vs. rent.
According to Zillow, home prices appreciated 18.5% from 2011-2016, which translates into $29,000 in increased equity for the owners of a median-priced home over the past five years.
For those who purchase a home, there may also be tax savings, and MI premiums can be tax deductible for purchasers who qualify. It's also important to note that MI premiums can be cancelled at the homeowner's request when the principal balance of the loan reaches 80 percent of the original value of the property. MI cancels automatically once your balance is scheduled to drop to 78 percent of the original value of your property.
These real numbers can help prospective buyers to understand just how worthwhile an investment MI is. So, jump in... now's the time!
More information on the tax deductibility of mortgage premiums is available on the Deduct Your MI Premium page.
For additional details on MI cancellation, visit our home buyers page.
Amy Butler is Regional Vice President of United Guaranty's Heartland Region. Butler joined United Guaranty in 2001 and has progressed through the organization from Customer Service to Sales. Most recently, she was Vice President of Strategic Accounts. Butler has been the President of the Atlanta Mortgage Bankers Association, earned many Associate of the Year awards, and recently earned the Accredited Mortgage Professional (AMP) designation. United Guaranty's Heartland Region includes Illinois, Indiana, Michigan, Minnesota, Iowa, Nebraska, North Dakota, South Dakota, and Wisconsin.
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