$27k payment to remove PMI?!

10 Replies

Hi, primary residence question. Currently have a townhouse rented and my primary residence. My PMI payment on my house is $212/month. I just had an appraisal completed and because I have only had the loan for less than 5 years I am required to have 75/25 loan to value. With that said, that's a $27k payment towards my mortgage to remove PMI. That's $2544/year that wouldn't be wasted. I have $50k saved so that would be a big hit. I could wait it out intil 2021 when I'll be at 80/20 and PMI will come off the loan anyways, but that's an $5k gone to nothing.

Thoughts??

I’ve been saving for another investment but I don’t currently have anything available in my area. Not sure if it’s worth to spend the money. Thanks for your help!

Originally posted by @Nick Dillaha :

Hi, primary residence question. Currently have a townhouse rented and my primary residence. My PMI payment on my house is $212/month. I just had an appraisal completed and because I have only had the loan for less than 5 years I am required to have 75/25 loan to value. With that said, that's a $27k payment towards my mortgage to remove PMI. That's $2544/year that wouldn't be wasted. I have $50k saved so that would be a big hit. I could wait it out intil 2021 when I'll be at 80/20 and PMI will come off the loan anyways, but that's an $5k gone to nothing.

Thoughts??

I’ve been saving for another investment but I don’t currently have anything available in my area. Not sure if it’s worth to spend the money. Thanks for your help!

Here is an interesting thing you could do. Use the $27K to get rid of the PMI, then take a HELOC out on the property. Use the money from the HELOC to invest.

 

@Nick Dillaha ,

As you said, that’s 27k to save 5k. Here are my questions:

First, identity your options. Are you going to invest that money? If so, what will be the return annually? Don’t just calculate that for the next two years, but rather the time until you’d pay off your mortgage.

Second, what are your actual savings if you do this? It’s not just the 5k. Add on the interest you’d be saving annually due to the 27k reduction in your principal.

Third, and perhaps most important, what are your goals? If you’re planning on investing in real estate, will this be a setback to those plans? Is that acceptable as compared to your savings?

Oh, and also what’s the impact of this higher mortgage payment each month if you don’t do this? I’m thinking for you, since you have this savings, probably not much. But then again, I don’t know, and it could impact your ability to continue making your payments.

Yeah, sometimes I’m guilty of analysis paralysis, but no one can say I don’t consider all of the facts.

And finally, my opinion... I’ve earned it now. Lol. Use that money to invest. Use it wisely. Educate yourself, assuming you’re not already investing, and make a long term real estate investment plan. And don’t look back.

Good luck!

@Barry Pekin I've been running all of this through my head! My plan was to invest the money, and still is. But, I started exploring other options since I don't have any immediate use for the savings. We just refinanced our rental property to get out of a 10/1 arm and have a new fixed rate at 3.5% for 30 years. Our next decision is to refinance our primary residence, the interest rate is only 0.5% less currently but there's $150/month in PMI savings/month, plus $150 savings in payment. So around $300/month in savings, plus more payment going towards principle. My current mortgage doesn't allow PMI to come off until the loan reaches 75/25 for the first 5 years of the loan. So, December 2021 is when PMI would fall off because we would have reached 80/20. That's 27 months of payments or $8100 in savings over that period ($300*27 months). Simple math, $5700 to refinance (paid up front), $8100 in savings plus the interest savings from the remaining loan balance. Thoughts??






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@Nick Dillaha   Do the math to see how much you'd save in interest over the remainder of the loan.  also look at what you'd do with that money. Does your mortgage allow you to make extra payments which will reduce the term of your mortgage, and save you money on interest.  

You sound like a saver, which is good, and my guess is you've saved enough that you will pay off as much of the the mortgage as you can early while avoiding any penalties.  On my mortgages, I can do a 10%/year payment and double the monthly payments without penalty if I want.  The 10% is on the original amount of the loan.

@Nick Dillaha Lots of good comments/advice here already. I don't know your area, but there are typically some local community banks that have no PMI loan products without 80% LTV. This could be a perfect fit for you. Rate is typically higher, but worth calling around and asking. Many community banks up here in Cincinnati have low closing costs as well, sub $500.

I'd use the money elsewhere, like buying another rental if that's your goal

Hi @Aaron Bonne the loan I would be refinancing with is a credit union. Best rates around and my PMI payment drops to $58/month vs $212 now. My goal is to buy more rental properties and this process would just be additional savings in my pocket every month towards my goal. You wouldn't spend the $5700 to save $8100? Thank you so much for your time.

@Theresa Harris Thank you for your time! I am a definite saver and am looking to lower my payments to increase my savings to buy more properties. I would make my initial $5700 back in the first 19 months so anything after would just be additional. I will definitely look into how much more I can pay towards principle. Thanks again for your expertise. 

@Nick Dillaha ,

It sounds like a good plan.  I frequently look to my budget to determine where I can tweak things to make it better overall.  It looks like that's exactly what you're doing.

My only additional advice is to carefully plan what to do with that money.  Do you want it so you can eat out more?  (I don't think that's you, but...)  If so, then use the extra money for that.  If you want to put it toward RE investing, then make sure you do that.  There's nothing I hate more than freeing up $100 or so in my monthly budget only for it to simply get absorbed somewhere in to what I'm spending.

@Jerry Padilla current rate is 4.25, new rate is 3.75. I would have to make an additional $6k payment to drop PMI all together. I would be happy paying the $58 for PMI vs spending the additional $6k.