Is it worth to buy out PMI?

Question

My friend got a conventional loan and bought out the PMI at like 2% charge.  Is this worth doing instead of paying PMI in your monthly PITI? Do you save money in the long run?  I guess it would help on cash flow for a rental if you were to buy out PMI, right? Hope this makes sense.  Would love to hear ya'lls thoughts. Thanks.

Elizabeth Colegrove · Answer

I personally have no problem with pmi because it means I was able to put down less than 20%. My plan is eventually when the deals are non existent or the mortgage rate doesn't make sense. To then use the tenants profits to pay down the mortgage.

Eric Black · Answer

Hi Tim,

Is this a property you already own or are purchasing? If you're purchasing it then you need to run the numbers. Let's look at a $100,000 property. If you put 20% down to avoid paying PMI that means you have to put $20,000 down. If you put less down and pay PMI I'm assuming it would be around $75/mo but you'd need to consult with your lender to find out exactly what they would charge. One thing to think about is that with a lot of lenders, after you have owned the property for 2 years, if the property has appreciated enough to where what you owe is 80% or less than the current value they will eliminate the PMI. My wife and I recently did this and we're now saving $119/month!

Again, it's going to depend on the exact numbers of your property.

Cheers!

Tim Ball · Answer

Thank you, Californians!! I was thinking as if I was purchasing my own home and wanting to make it a rental a couple years down the road.  My cash flow would be better if I bought out my PMI.  I guess I will just have to run numbers with my lender to see which one makes sense.  Thanks again.