About Private Mortgage Insurance

Shopping for Private Mortgage Insurance

As an astute consumer, one of the things you’ll want to do is check out the various mortgage insurance underwriters and shop for the best price. If you approach your loan officer with this proposition, he or she will likely tell you that you actually can’t shop around for private mortgage insurance. It’s probably going to stun you because shopping around is what makes competition and free markets great, but your loan officer is right. You can’t shop around because the lender usually applies for you but even if you could, it wouldn’t matter. The quote you get from one company will differ very little from a quote from another company because they run solely on numbers. In fact, the competition you would expect to find lowering prices actually raises them because of a well known economic theory.

It’s called perverse competition and it occurs when a company offers a product that can only be sold with another, much bigger, product. In this case, the smaller product is mortgage insurance and the bigger product is the mortgage itself. Now, what happens is all these mortgage companies now compete against each other to win the favor of the mortgage companies - which in turn increases their costs. So, in this situation, competition has increased prices for the end consumer. That ends the elementary economics lesson.

This entry was posted on Monday, June 12th, 2006 at 8:19 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.