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Does PMI give any benefits to someone's credit if they default?

 

Q: If they default, does PMI provide any benefit to someone's credit?

A: Private mortgage insurance (PMI) is a policy which protects the mortgage lender, covering a portion of the value of the mortgage in the event that the borrower should default. If you are putting less than 20 percent down toward the purchase of a property, you will generally be required to have some form of mortgage insurance, and you are responsible for making the premium payments on behalf of the lender. Usually, these are paid from your escrow account and collected as a portion of your monthly payment.

The existence of PMI on your mortgage has no beneficial effect on your credit. Credit wise, if you should default, you are on the hook for the entire amount you borrowed, regardless of whether the lender has taken a policy to protect their interest. There may be "credit insurance" or "credit life" policies that are available to you, which are generally structured to make monthly payments on your mortgage (or even pay it off entirely) should you become unable to make your mortgage payments. In this way, they can protect your credit if you lose your job or you should pass away.

Whether or not these have value will depend upon your circumstance and the cost of the policy. For "credit life," an argument could be made to take an inexpensive term life insurance policy and let your survivors decide whether to pay off the mortgage (or not) with the proceeds.

About the author:

KTGA 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.

 

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