How to Compare Fixed Mortgage PMI Policies

Many fixed mortgage loans require the borrower to carry private mortgage insurance (PMI) for at least a portion of the time the mortgage is active. PMI is similar to other forms of insurance. The policy holder pays a monthly premium, and if any problems occur, the policy holder can make a claim. In this case, the "problem" would be something like job loss, illness or another situation that would cause the homeowner to be unable to continue paying the loan. Then, the mortgage insurance company would pay the lender. Because PMI is just another form of insurance, finding a good PMI policy follows the same rules as finding a good insurance policy in other areas. 

Set Reasonable Limits

The first items you must consider on any policy are limits. A "limit" is the most an insurance company will pay out on the policy. Often, there are two different sets of limits: one for each occurrence and one for the policy as a whole. Mortgage insurance typically has only one limit, the total policy limit, since there are not typically individual claims on the policy. With a mortgage policy, your lender may require you to carry a specific limit. In this case, this is the minimum amount you should carry but not necessarily the maximum. 

Consider Personal Resources

The higher your limits, the more expensive your policy. When you compare policies with two different companies or two different policies within the same company, consider what you can afford to pay. If you have tens of thousands of dollars on reserve for an emergency, your limits can be slightly lower. The likelihood you will need your PMI company to pay your entire loan balance is low. However, if you are stretched for cash in your mortgage and have few resources, coughing up the extra hundred dollars a month for a higher limit policy may be advisable.

Find the Best Rate

Once you have set appropriate limits for your mortgage, compare two PMI policies based on rate. Many homeowners are surprised to see how different two quotes can be. Some companies give large discounts to married couples, families with children or individuals in stable professions. For example, doctors often receive discounts on insurance since they are seen as unlikely to lose their jobs. Often, two policies will have similar expenses but different payment schedules. In this case, you can choose the payment schedule that best fits your household budget.

Factor in Customer Service

Do not make the mistake of choosing a policy on price alone. Remember: cheap insurance is often cheap for a reason. Research the company you will be working with to learn about customer satisfaction. You may even glean some information from your initial discussions. If you feel one company is dismissive during the quote process, you should go elsewhere. Many homeowners choose to bundle mortgage insurance with car insurance or home insurance. This is one way to a better rate. It is also a way to ensure you know who you are working with. If you like your car insurance company, consider asking about PMI from the same organization.

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