Difficulty: Hard

Average Score: 29%

For the borrower, the major advantage of private mortgage insurance (PMI) for a home mortgage loan is that

Rationale

a smaller down payment is required.

Private mortgage insurance (PMI) enables borrowers to secure a home mortgage loan with a lower down payment, typically less than 20% of the purchase price. This advantage allows more individuals to enter the housing market, facilitating homeownership even when they may not have substantial savings.

A (the premium is typically paid by the seller) YOUR ANSWER

While it is possible for sellers to cover closing costs, including PMI premiums, this is not a common practice and does not represent a major advantage for the borrower. In most cases, the borrower is responsible for paying PMI, which serves to protect the lender in the event of default, rather than benefiting the borrower directly.

B (a smaller down payment is required) CORRECT

This is the primary advantage of PMI, as it allows borrowers to make a down payment of less than 20%. By mitigating the lender's risk through insurance, PMI enables borrowers to purchase homes sooner and with less initial financial burden, making homeownership more accessible.

C (the entire amount of the loan is insured) YOUR ANSWER

PMI does not insure the entire loan amount; rather, it protects the lender against losses if the borrower defaults. The coverage typically applies only to a portion of the loan, meaning that borrowers remain liable for the full amount of their mortgage debt.

D (the loan is paid in full if the borrower dies) YOUR ANSWER

PMI does not provide a death benefit or pay off the loan upon the borrower's death. Such provisions would typically be covered by life insurance or specific loan protection insurance products, not by PMI, which solely serves to protect lenders from borrower default.

Conclusion

The major advantage of private mortgage insurance (PMI) for borrowers is the ability to make a smaller down payment when securing a home mortgage loan. This advantage facilitates homeownership for those who may not have sufficient savings for a traditional 20% down payment. Other choices either misrepresent PMI's role or address unrelated aspects of mortgage financing, thus highlighting the unique benefit of reduced down payment requirements enabled by PMI.

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