Just bought first primary, pay to remove PMI or save for rental?

Question

Do I pay down mortgage to remove PMI faster?

I am in escrow on my first ever house, it will be my primary home. It’s three bed two bath on 6 trees acres with animal corrals, outhouse, fire pit, etc. I will be renting out a room, probably AirBnBing the other room, as well as putting some of the property locations up for HipCamp and putting money into transitioning some of the outbuildings into tiny home dry cabins with compostable toilets to be able to rent them out and use the profits to save up to install actual plumbing down the road.

I’m trying to decide if I keep putting profits into this to get the PMI off the mortgage (I only put 5% down). The PMI is about $120 a month, my interest rate is 2.85% and I will have 266k in the loan. I know I should keep the cheap debt and save money for purchasing a multi-family next, but is it wise to put all the profit towards my primary until my PMI is gone and then save for the rental? I won’t be able to save up to purchase my next rental probably until my market dips again in a couple years.

Brandon Rush · Answer

Hey Caitlin,

Congrats on the primary residence purchase. I love how creative you are being with the property you purchased! Personally, I would just leave the PMI as it and not pay it off. Its such a small amount, its not going to make a significant difference it it were gone. There is no guarantee you will be able to get a rate that low in the future. I would recommend accumulating your profits and rolling them into the next property. If you had the opportunity to somehow increase the income on your property from campsites and mini homes then you could potentially refinance the property into a commercial loan in the future. This may free up money for another low down payment purchase if you choose.

Either way, you will be just fine and it sounds like you are going to have fun with this property.

Good luck!

Theresa Harris · Answer

There is the $120 a month, but also the actual cost to pay it off (ie 15% of the purchase price). As long as you have more room to borrow, just save the money for a down payment for your next property as you will need 20% down.

Taylor L. · Answer

Start with your goals. For investors looking to maximize their return, paying down low interest rate mortgages to eliminate PMI is typically not the optimal answer. Sure, you're talking about $120 a month, which isn't nothing. But what is your percentage return by eliminating that PMI?

I did this math for myself on my primary residence, and it was a no-brainer. For my goals and priorities, it makes far more sense to continue acquiring and investing in other properties, rather than quickly paying down my primary mortgage.

Just bought first primary, pay to remove PMI or save for rental?

Just bought first primary, pay to remove PMI or save for rental?

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