Tell me how many people have 20% to get a house for 1st time buyers? It's another revenue stream for banks to make more money.
I agree. Seems a bit steep and it's just another way for big money to hammer us. I get they need 'some' protection.....that protection should be them not lending the $$ or just charge the higher risk loans a higher interest rate. Nailing us to the tune of $100-$180 a month extra just because they can is BS.
But look at what you wrote: if you're worried about "Big Money" (good tune, really hate the liberal descriptor "Big" before any institution they don't like. Yes, I know you're not a liberal, but that's the origin of that terminology) why do you give them two options that actually make them the same amount of money but fuck over the little guy? If they don't give YOU (the person without the 20% down), they WILL give it to someone else who does, meaning, they make their money and you don't have a house, or they charge higher interest, which means they get their money and you still pay more? Why wouldn't you take the PMI which actually also affords you some protection, and can fall off the note at the 20% equity point (a higher interest rate will not and would require you to pay additional closing costs, which is yet more money out of your pocket)?
I don't have an issue with the banks making money on the loans they give out. They're the ones with the $$ to hand out so they should make money on it. But they are ALREADY making money on it with whatever interest rate they charge you. People with good credit get ___ interest rate, bad get ____....great gets ____. It seems simple enough and provides incentive for people to care about their decisions that could affect their credit scores. PMI or whatever loan insurance 'in case' the loan is defaulted on should be assumed by the banks and not by the borrowers.
Or, they could just lower the cost of PMI. Tacking on an additional $100+ to a house payment is brutal for most everyone. I know I could use an extra $100 a month.
First, "insurance" costs what it costs. It gets underwritten and is what it is. A lesser premium WOULD be a tax or a penalty, because it wouldn't cover the risk.
Second, I respectfully think you're looking at this from the wrong direction. Why would the banks assume that charge? They are going to put their money to work one way or another. They are going to get their return. If you, the potential homeowner, want a house, you have only so many options. With the time value of money being what it is, it's almost NEVER more cost effective to wait until you've saved the 20%, or till your credit score is sufficient to get that extra 1% off your interest rate. You end up paying more in the long run that way.
So the option is, higher interest rate for the life of the loan, or PMI for a period of time (roughly ten years on a 250K loan with 3.5% down, FHA numbers). Funny thing? On a $250K loan for 30 years, the difference between a 3.75% interest rate and a 4.75% interest rate is.... wait for it Long Beach, wait for it! Just over $100.