How do I explain mortgage insurance to my buyers?

Rob Miller, Branch Manager at MadCity Home Loans, gives Realtors a simple framework for the PMI conversation so it doesn't derail a deal.

How do I explain mortgage insurance to my buyers?

PMI is one of the most commonly misunderstood line items on a mortgage payment — and poorly explained, it can make buyers panic or walk away from a perfectly good deal. Here's how I recommend framing it:

The Simple Script

"Mortgage insurance isn't insurance for you — it's insurance for the bank. Because you're putting less than 20% down, the lender charges a small monthly fee to protect themselves if you ever stop paying. Think of it as the cost of getting into the home now instead of waiting 3–5 years to save 20%. On a $350,000 home, it's typically $80–$150/month. And the good news? Once you hit 20% equity, it goes away."

The Math That Settles It

Frame it this way: if paying PMI lets your buyer stop paying rent $1,600/month and start building equity, the net calculation is almost always in their favor. A buyer paying $120/month in PMI is still better off than paying $1,600/month in rent with zero equity gain.

FHA MIP Is Different — Say This

If your buyer is on FHA, be transparent: "FHA's mortgage insurance premium (MIP) is similar to PMI, but it works a bit differently. It lasts longer — typically the life of the loan if you put less than 10% down. That's why once they build equity, we should revisit whether a conventional refi makes sense." This sets the stage for a refinance conversation down the road and keeps your buyer long-term.

When to Call Me

If a buyer is hesitant about PMI, get me on the phone. I'll walk them through the exact dollar math for their specific loan and show them when PMI disappears. It usually resolves the concern completely.

---

Related Post: Buyers can read the full breakdown in our PMI Guide.