Purpose

• The purpose of private mortgage insurance (PMI) is to make sure the lender gets paid if you default on the mortgage. While this might be beneficial for you if the insurance company makes the payments (since you won't be foreclosed on), the premium payments for the insurance could make your mortgage payments significantly higher than they otherwise would be.
  
  

Significance

• Your PMI insurance premiums may be between .5 percent and 1 percent of the total cost of the loan. According to Mortgage Insurance Companies of America, as stated on CNNMoney.com, however, it is typical for PMI to cost $50 to $80 on a median-priced home ($159,000). This payment may not be deductible for you; and if you never use it, then the money is lost forever. You cannot recover the premium payments.
  
  

Benefit

• The benefit of private mortgage insurance is that the lender is required to cancel the insurance after your equity position has reached 78 percent (for most loans) or 77 percent (for high-risk loans). At 20 percent equity, you may initiate this process yourself and cancel your private mortgage insurance.
  
  

Consideration

• Consider canceling your PMI as soon as you can. Redirect the premiums to your personal savings. If you do this, you may be able to accumulate a savings sufficient to make payments on your mortgage if you ever experience financial hardship. If you are able to use a piggyback loan (a primary loan and a second, smaller loan, usually a home equity line of credit) to avoid your lender's PMI requirements, this will save you money on the PMI payments.