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.

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Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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