So we've all seen the debate a million times - pay off the mortgage or keep it? I am in a relatively unique scenario that IMO makes it an even more difficult decision.
I bought the house in Nov 2012 for 129k. Foolishly I only put ~3% down on an FHA loan so the mortgage started at ~126k. The plus side is my interest rate is a measly 3.125%. The mortgage is now at ~117800 and the home is valued at ~135k. I am paying PMI to the tune of 123/month. Taxes and insurance run a combine 308/month.
After maxing out my 401k and our IRAs I have been putting extra money (currently 2k/month) in a taxable account hoping to grow it to the point that I could pay off the mortgage in one big payment once it's large enough. My original goal was to pay it off in 5 years (Nov 2017) but after some raises/bonuses, etc, it looks like I could conceivably get it done ~June 2016.
The interesting/different part of the math becomes getting rid of the PMI payment. The way the law is written, you are required to pay PMI for a minimum of 5 years. However, if you pay off the entirety of the mortgage before that time you don't have to pay the PMI. So not only am I saving on the interest, I'm also saving that 123/month that I'd be paying in PMI for the 1 1/2 years before Nov 2017.
So the two options before me are:
1) Keep the mortgage and get rid of PMI in Nov 2017. Contribute 2k to the taxable account until then, then add the PMI payment to those contributions once PMI is gone.
2) Pay off the mortgage ~June 2016, then keep contributing the 2k + PMI + Principle/Interest payment to the taxable account.
If I've done my math correctly it looks like it's close to a wash. I'm assuming here that my taxable account would give me 7% ROR. Has anyone ever gone through something like this? Is my reasoning sound? I'd appreciate some more eyes on this.