So say you have 325k mortgage. PMI is 1841 a year. If you invest 32.5k and get the market avg 10% return after 7 years the 32.5k is worth. 63k. The 1841 compounded over 7 years is worth 19k. So you come out over 10k ahead in this situation. And it doesn't take into account a refi after 1 year. If rates stay low. What am I missing here cheddar

Boarder, I think you're missing the interest (3-4%) that you're paying on the 32.5k for borrowing it. That will cut into your return even if you get "typical" market results.

@ boarder42, I ran your example in a mortgage calculator spreadsheet I have on my desktop at work. I had to a assume a few things. 30 year mortgage, 4.25% interest rate, etc. At 10% ROI, which I think is high but that's another story, your $32,500 would earn $268 in month 1. But you would pay an additional $115 mortgage interest, plus the PMI of $153, for a total of $268. Very odd that with these assumptions it's 100% breakeven in month 1.

However, since your cash outflow is $300+ higher with the 10% down scenario, you theoretically have less $ to invest each month, so you have to "reduce" your $32,500 investment by that cash flow difference. This results in a slowly declining ROI on the initial $32,500 at a faster pace than the mortgage interest is reduced. By the end of the 7 years, you are $30 in the whole each month.

If I change the ROI to 7%, the ROI on the $32,500 is $188 in month 1 so you are starting out down $80/month. It's not an easy calculation, and I don't really see a clear winner with the numbers I've run. Just make sure you are factoring in everything you can when calculating it.

What I did, in 2007 so it might not work anymore, was an 80/10/10 loan. 80% mortgage, 10% HELOC, 10% down payment, no PMI. That's the best of both worlds IMO. Good luck figuring out what works best for you.