How does paying Private Mortgage Insurance (PMI) benefit a borrower?

Paying Private Mortgage Insurance (PMI) primarily benefits a borrower by allowing them to secure a mortgage with less than a 20% down payment. Lenders typically require PMI when a borrower makes a down payment that is less than 20% of the home’s purchase price. This insurance protects the lender in case the borrower defaults on the loan. By paying PMI, borrowers can access financing options that might otherwise be unavailable due to lower down payment amounts, enabling them to buy a home sooner rather than waiting until they can save a larger down payment.

While other choices suggest various benefits of PMI, they do not accurately reflect its primary purpose. PMI does not inherently reduce interest rates or eliminate the need for a down payment; rather, it serves as a safety net for lenders in higher-risk lending scenarios. Additionally, while it may influence a borrower’s overall financial strategy and allow them to stretch their purchasing power, the critical factor is its role in facilitating loans with smaller down payments.