I don’t understand how making me pay an extra 500$ a month makes me MORE likely to not default on my loan. I live in Southern California and to put 10% down on a house it costs like 170k at least. Anyways I’d love to know why it’s mandatory I pay PMI.
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It’s not about making you less likely to default on the loan.
It’s an insurance policy for your *lender*. If you default, the insurance pays *them* to cover some or all of the money they lost when you defaulted. Because you would like to buy a house, one of their terms is that YOU pay for the insurance, not them.
Generally there are ways to avoid it and get out of it. For example, if I had put 20% down, I would not have had to pay PMI, and when my principal is below 20% of the original loan value I will stop paying towards PMI. There can be other terms based on your creditworthiness, down payment, amount of the mortgage, etc. It’s probably also cheaper or more expensive for different people based on lots of those factors.
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