Have you checked out doing a 95% loan with single premium PMI?

PMI is still tax deductible through 2016. Beyond that, Congress will need to renew the deduction. Traditionally, PMI has not been deductible. The housing bubble law changes made it deductible but also added a sunset provision, hence the need for Congress to renew.

You'd need to verify it with a tax accountant, but I suspect that paying the full PMI premium up front could save you money on the premium and allow you to gain the most tax advantage.

BTW, I worked for a few years as a mortgage loan rep for an independent mortgage broker.

If you are only talking to a single lender, I'd suggest that you visit an independent broker who isn't just tied to one lender's loan products.