Final answer:
The borrower pays more over time with a higher interest rate, as it is a permanent feature of the loan compared to cancellable PMI payments once sufficient home equity is built.
Step-by-step explanation:
One disadvantage of a borrower accepting a loan where the lender pays for the private mortgage insurance (PMI) and charges a higher interest rate is that the interest is paid over the life of the loan, making it more expensive in the long run.
Unlike PMI payments, which can eventually be canceled once the borrower has enough equity in their home, the higher interest rate is a permanent feature of the loan. This arrangement, known as lender-paid PMI or LPMI, benefits the borrower initially by reducing up-front costs, but it means more is paid out in interest over time.