62. For the borrower, the major advantage of private mortgage insurance (PMI) for a home mortgage loan is that
Answer: B
A smaller down payment is required.
Private mortgage insurance (PMI) allows borrowers to obtain a home mortgage loan with a smaller down payment, making homeownership more accessible for those who may not have substantial savings.
A) the premium is typically paid by the seller.
This option is incorrect as, while it is possible for the seller to contribute towards closing costs, the PMI premium is usually the responsibility of the borrower. PMI is specifically designed to protect the lender in case of default, and thus the borrower typically pays for it.
B) a smaller down payment is required.
This option is correct because PMI enables borrowers to qualify for a mortgage with a lower down payment, usually less than 20% of the home's purchase price. This significantly lowers the barrier to entry for homebuyers, facilitating home purchases that might otherwise be unattainable.
C) the entire amount of the loan is insured.
This option is incorrect as PMI does not insure the entire loan amount. Instead, it protects the lender against losses if the borrower defaults, covering only a portion of the loan amount based on the terms of the insurance.
D) the loan is paid in full if the borrower dies.
This option is incorrect because PMI does not provide any benefit in the event of the borrower's death. Life insurance or other forms of financial protection would be necessary to cover the outstanding loan balance in such cases.
Conclusion
The correct answer, B, highlights that the primary advantage of PMI for borrowers is the ability to secure a mortgage with a smaller down payment, promoting wider access to homeownership. Other options either misrepresent the nature of PMI, or pertain to unrelated aspects of mortgage agreements, demonstrating that they do not address the core benefit of PMI effectively.