A. Saving up a “traditional” 20% down payment can be difficult for many individuals. As a result, many borrowers end up paying private mortgage insurance(PMI), in order to cover the lender’s risk that the proceeds from foreclosing on a property would not be sufficient to cover the outstanding liability of a mortgage.
On the one hand, PMI is therefore valuable to borrowers as it creates opportunities for homeownership for those that don’t have enough cash saved up to put 20% down (it is effectively the “cost” of buying a home without a traditional down payment), but, at the same time, PMI can seem like an expensive drain on a borrower’s cash flow, making it enticing to pay down the debt to eliminate the need to pay PMI.
How to determine the ROI in eliminating PMI? Here is a great article that discusses this topic.