Should I Pay PMI or the Higher Interest Rate - Should I pay PMI or go with the loan with a higher interest rate but no PMI? This is a choice many borrowers face when deciding on a loan. There are many pros and cons for each choice. Borrowers should talk to an experienced Mortgage Consultant or Financial Consultant to help with their decision.

Private Mortgage Insurance (PMI) must be maintain until the loan balance falls below 78% loan-to-value (LTV) ratio. The decision on getting a loan with a higher interest rate or one with PMI depends partly on how long for the loan to reach 78%. Also, home owners tend to opt for mortgages with PMI if they intend to refinance in the near future.

There are loans out there where PMI is not required and your interest rate will not be effected as well. For example, keeping your LTV (loan to value) below 80% will allow you to not pay PMI with any loan, where it may just be a lender that does not require it.

PMI is not tax deductible, but mortgage interest is. You will want to take that factor into consideration when making your choice.

Some lenders pay the mortgage insurance on loans over 80% by raising the rate by a small fraction. This allows the borrower to get one loan and not having an additional expense which is not deductible on one's taxes.

Why do lenders charge PMI if your loan is above 80% LTV? Studies have shown that most foreclosures happen before the borrower has 20% of the mortgage's principal paid off. So, loans with an LTV of 80% or higher pose a greater risk to the lender.

You may also choose to do a combo mortgage like an 80/20 to avoid PMI. A combo mortgage carries with it a higher rate
on the second mortgage. Even with a higher rate second the borrower often comes out ahead when compared to a traditional loan with PMI.

There are also some loan programs now available that do one loan up to 100% with no PMI, ask your Loan Officer for more details.

Some savvy buyers will negotiate for the seller to pay the PMI as a one time up front charge. Be sure to ask your Loan Officer and Realtor if seller paid PMI is an option for you.

There are also some lenders that offer a lender paid MI program. On pay option loans they will usually increase the start rate of the loan.

PMI - The New Rules - PMI or Private Mortgage Insurace is a way for lenders to protect themselves in higher risk loans. PMI usually kicks in when a loan is more than 80% of Loan to Value (LTV). There are alternatives to PMI but make sure you know of the new tax benefits that PMI allows on purchases or refis made after January 1, 2007.

One caveat concerning the new rules and tax deductibility of PMI. It is only available for new purchases or acquisitions. Refinances are not eligible for tax deductions under the new tax laws.

PMI, also known as Private Mortgage Insurance is a type of insurance that protects the lender in the event that you are unable to make your mortgage payments as scheduled and your home is foreclosed upon. This insurance does not protect you the buyer or save you from losing your home, but it protects the lenders investment. PMI is normally required anytime you do not have 20% down or 20% equity in your home. There are some ways around PMI that may be able to save you money off of your monthly mortgage payment, however with the new PMI rules that went into effect on January 1st of 2007, you should consider possibly wanting to pay PMI versus the other ways to get around PMI. One such way to avoid paying PMI, probably the most common way, is to obtain a combo loan. A combo loan is a first and second mortgage, where your first mortgage is 80% of the value of the home and the second mortgage is the remaining percentage of the loan that you are over 80%. These types of loans are still going to be very good options for many people, but it is going to depend on each person's financial goals on which option is going to be best for them. Ask your mortgage professional for more information about PMI and the new rules and also if PMI might be right for you.

The biggest deductions you get under the new PMI rules is when your AGI (adjusted gross income) is under $100,000 for couple files jointly or $50,000 for filing as a single person. You are then able to deduct 100% of the PMI you have paid over the course of the year. Above that amount then your deduction decrease by 10% for every $1000 AGI above the $100,000 or $50,000 cap. In other words, the deduction disappears for those couple who have a AGI above $110,000 or single filers above $60,000.