Mortgage Insurance

Deciding On Bozeman Mortgage Insurance

When financing a Bozeman home, the advantages of (private) mortgage insurance (PMI) are not always evident to the borrower.

Many prospective borrowers believe they need to provide at least a 20% down payment to avoid paying for Bozeman mortgage insurance. However, there are many situations in which borrowers can benefit by using mortgage insurance.

Five Types Of Mortgage Insurance, which your lender can explain:

  1. Borrower-Paid Mortgage Insurance
  2. Single-Premium Mortgage Insurance
  3. Federal Home Loan Mortgage Protection
  4. Split-Premium Mortgage Insurance
  5. Lender-Paid Mortgage Insurance

Benefits of Mortgage Insurance:

  1. Mortgage insurance may increase what Bozeman real estate you thought you could buy. For example, a borrower with a $20,000 down payment can buy a $100,000 dwelling without mortgage insurance. This meets the 20% rule for opting out of purchasing mortgage insurance. But by using mortgage insurance, a borrower may be able to purchase a more expensive property than they could have, if they had put down 20% on a less expensive property.
  2. Mortgage insurance can help home buyers consolidate debt and save on income taxes. Even if borrowers can come up with a 20% down payment, it Mortgage Insurance for Bozeman MT Homes Photomay be more beneficial for them to put less down and apply the balance of their available funds to other debts or opportunities (see example below).
  3. Even if borrowers don’t have a lot of debt to pay off, they may have alternative opportunities for investing their money. Let’s look at the situation of another couple, Andy and Jan Green. The Greens also have a combined income of $50,000 per year ($4,167 per month), and have planned to make a 20% down payment on a $125,000 home. However, the Greens are debt-free. Their loan officer explains that the return on the equity they use to make a down payment is much higher with a smaller down payment, as show below. This illustration assumes the home appreciate at 15% per year.

Mortgage Insurance Calculations (Examples):

EXAMPLE: Charles and Angela Brown have a combined income of $50,000 per year ($4,167 per month). They’ve picked out a beautiful home and negotiated a purchase price of $125,000. The Browns have saved $25,000 for use as a down payment, and they have $12,500 in debt, as detailed below:

DebtOriginal BalanceOriginal TermInterest RateMonthly PaymentBalance Due
Credit Cards18%$200$4,000
Car Loan$18,0005yrs10%$382.45$8,500
Total $582.45$12,500


Expenditure20% Down Payment10% Down Payment
Home Purchase Price$125,000$125,000
Down Payment$25,000$12,500
Loan Amount$100,000$112,500
Monthly P&I*$722.76$825.49
Monthly MI Premium**$0.00$48.75
Other Debt Payments$582.45$0.00
Total Monthly Payments$1,361.21$874.24
Monthly Savings is MIN/A$411.97
Housing Debt Ration***22.4%25.8%
Total Debt Ration36.4%25.8%

* Assumes 30-year fixed-rate fixed-payment mortgage at 8.0% interest (yes, today’s rates are much lower!).


Down PaymentInitial EquityFirst-Year AppreciationReturn Equity

Taunya Fagan Real Estate does not advise on any personal mortgage insurance or home insurance requirements or issues. Use of any information from this site or any other web site referred to is for general information only and does not represent personal insurance advice either express or implied. You are encouraged to seek professional insurance advice for questions and assistance.