I'm currently in the process of looking for home to buy, and one of the options is one costing 460K, which I plan to pay with 15% down and the rest (391K) financed. Since it's less than 20% down, the bank offered me two options - pay mortgage insurance (PMI) - about $100/month, with rate of 4.25%, or pay 4.625% and no PMI. Monthly payments in both cases are roughtly equal (less than $20/m difference).
I am considering taking PMI/low rate option, since as far as I understand, I could cancel the PMI once I reach 80% equity (which will take 4 years on amortization schedule, if I built it right), and also looking at the amortization schedules, I end up paying significantly less interest this way. Also, if I would want to resell the home, the balance on the mortgage is lower each year of the schedule, which means I'll get more money if I sell before the end of the loan. There's also an issue of interest being tax-deductible, but I didn't figure out yet if it matters (I think not, but not 100% sure).
However, I got a feeling that the bank representative (though she didn't say it directly) thinks no-PMI option is much better. I wonder if I'm missing something or it's because it's better for the bank (since I'd end up paying more interest)?