I recently bought my first house, and admittedly have no idea what I'm doing when it comes to home financing. I did not put down 20% so I have to have PMI until I pay off the principal up to 20%. That makes sense to me. My PMI payment is roughly $250 per month and was secured by loan agent - I had nothing to do with getting that policy.
However, after I bought the house I started getting letters from various companies trying to sell me "mortgage insurance". I gave one of those companies a call and some guy came over to take my information. He claims that if I get mortgage insurance from his company, the payments would be about half of my PMI payments (he quoted me an exact dollar amt and that amt was on the application). Also, he said that the mortgage insurance would replace the PMI. He said that he would work with my lender to include them on the mortgage insurance policy so in the event of my demise the house would get paid off and the remainder would go to my estate. This would mean that my overall monthly escrow payment would actually go down by over $100.
I haven't committed to anything yet, but the application is going through. However, I'm a skeptic and a believer in "if it's too good to be true, it probably isn't". So this whole idea of saving money on PMI is a little hard to believe. I asked as many questions as I could think of to try to find the scam, but the guy had all the right answers.
Is this a legitimate concept? What is mortgage insurance and how does it compare to PMI? What questions should I be asking of this guy before I commit to a policy? Should I talk to my lender and if so how should I approach them about it?