Mortgage Insurance is Expensive

• According to Bankrate.com, mortgage insurance costs about one-half of one percent of the loan amount. This translates to over $50 each month on a $135,000 loan. If you want to purchase a home and pay less than 20 percent down, it is an expensive essential or an expensive alternative. Mortgage insurance gets Americans on the path to home ownership without a large amount of cash outlay on the front end.
  
  

Mortgage Insurance Will Pay You Nothing

• You are insuring against your own default on the loan. The lender takes less risk because mortgage insurance covers any loan default. You get no benefit after the original loan acceptance. Your only benefit is in being able to get a mortgage with a low down payment. Mortgage insurance does not benefit you during the 30 years of payments. Make mortgage payments timely so your loan is never "high risk," then the lender can eliminate the mortgage insurance when you reach 20 percent payment on the loan.
  
  

Skip the Mortgage Insurance

• You can save the mortgage insurance if you choose to pay 20 percent down on the purchase of a home. State from the outset that you intend to pay 20 percent down to avoid paying the mortgage insurance. Another alternative is the 80-10-10 mortgage. You must pay 10 percent down on this mortgage. Financing includes two loans -- the primary loan is at 80 percent and does not require mortgage insurance. The second loan is 10 percent of the total. No mortgage insurance is required. Another alternative is to find a house you can purchase at 80 percent of appraised value. Some lenders skip the mortgage insurance if the appraised value is 20 percent higher than the loan amount.
  
  

Notify Your Lender to Cancel the Mortgage Insurance

• Read the terms of your contract carefully to be certain provisions are in place for you to have the PMI or mortgage insurance canceled. Once you pay 20 percent down on your mortgage, notify your lender in writing to cancel your mortgage insurance. Lenders must cancel automatically at 22 percent under most circumstances, but you are entitled to have the mortgage insurance canceled at 20 percent. Save yourself the monthly payment for mortgage insurance by paying your mortgage to the 80 percent level as quickly as possible. This makes mortgage insurance your best option. You get the mortgage without paying 20 percent down, but you can cancel the mortgage insurance as soon as you get the 20 percent paid.