removing PMI or paying off higher interest mortgage or saving/investing

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removing PMI or paying off higher interest mortgage or saving/investing

Clementina Reynolds
Member since 2019 · 1 post · 0 votes

Hi all--

Mortgage 1) 

interest rate 3.5%, $10k left to remove PMI (purchased as residential, now use as an investment property)

not cash flowing, but will be if I removed the PMI (cash flow would be like $50/month)

Mortgage 2)

interest rate 6.1%, $45k left to remove PMI (purchased as residential and currently looking to house hack)

Option 1) pay off PMI for mortgage 1 (start cash flowing!)

Option 2) use extra funds at the end of the month into a principal payment for mortgage 2

Option 3) invest extra funds in the stock market

Option 4) save extra funds in a high yield savings account and recast mortgage 1 so then the cash flow can become extra principal payments toward mortgage 2 or in savings to purchase another property.

I don't know how to compute which is the better option, but would also like personal advice and other options I hadn't thought of.

Thank you.

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Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2y

Divide the annual PMI payments (monthly PMI X 12) by the amount it will take to pay it off. That will get you a %. Is that percentage lower than what you can get in a money market? Is it lower than what you can reinvest that same capital and yield? You'll need to understand what % you are saving on an annualized basis to compare. That should make the decision a bit easier.

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  • Adah N.
    Investor · Atlanta, GA · Member since 2020 · 294 posts · 142 votes
    3y

    Definitely DO NOT spend $10k on PMI to get $50 per month. I'd say start saving for next property or stock market or even use for improvement to property if it will fetch higher rent or major deferred maintenance. For example if you intend to hold property long term and roofs are 25+ years old or you have 40 year old caste iron pipes etc. Or spend on flooring, kitchen, property renovation if it will fetch you $150+ more rent.

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Clementina Reynolds:

    interest rate 3.5%, $10k left to remove PMI

    So $10k plus cost of an appraisal to remove PMI. How much is the PMI?

    Dividing $10,500 by $PMI will give you the number of months it takes to break even. I shoot for 3yrs and would do it if I planned to hold the property long term.

    Alternatively,  hold in HYSA.  I'd take my 5+% risk-free over chancing it right now in the frothy 'stock market'.  Unless you know a sector inside and out and it's way down, buy an etf of that.  

    1Reply
  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    2y

    Divide the annual PMI payments (monthly PMI X 12) by the amount it will take to pay it off. That will get you a %. Is that percentage lower than what you can get in a money market? Is it lower than what you can reinvest that same capital and yield? You'll need to understand what % you are saving on an annualized basis to compare. That should make the decision a bit easier.

    1Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    2y

    What typeof loans are on the properties?

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    Kolodij Tax & Consulting
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