Author Topic: Max out 2013 IRA or try to kill PMI?  (Read 4005 times)

MrD

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Max out 2013 IRA or try to kill PMI?
« on: December 18, 2012, 11:50:07 AM »
My plan is to max out my ROTH IRA next year as I did this year but I was thinking today it may be wiser to just dump extra money towards the principle on my mortgage to get out of PMI.

Currently I owe 188k on a house that is valued at 222k on Zillow and a recent comp at 218k for the exact same model in same area. So taking the middle of that at 220k I am at roughly 85.45% LTV.

So if I instead were to put the extra 5kish towards the mortgage as well as my tax return ~4k I could really put a dent in the principle of the house. At this point I am leaning towards just sticking with the IRA because the PMI is only around $100 a month and I am already overpaying my mortgage every month by a good bit.

What do you guys think? Suck it up and pay the PMI? Or should I try and kill it asap?

jpo

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #1 on: December 18, 2012, 11:56:22 AM »
How fast will you get out of PMI if you max the IRA?

Has anything changed since the time that you decided to max for 2012?

MrD

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #2 on: December 18, 2012, 12:11:12 PM »
How fast will you get out of PMI if you max the IRA?

Has anything changed since the time that you decided to max for 2012?

At the current rate that I am overpaying it would take probably 4-5 years to get out of PMI assuming I get no increase in pay which is very unlikely. I would estimate 3 years.

Since maxing out my IRA in 2012 I have bought this home that I am in :).

Another Reader

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #3 on: December 18, 2012, 12:13:33 PM »
I'm always in favor of maxing out IRA's whenever possible.  Once the opportunity to save tax deferred or with tax free earnings is missed, it's gone forever.

In your shoes, after maxing the IRA, I would look for an opportunity to refinance at a record low interest rate.  If I could not do that, I would verify with the lender what I had to do to get rid of the PMI, and aim toward that.   If you have an FHA loan, the hurdle for getting out of MI is much higher.

MrD

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #4 on: December 18, 2012, 12:17:02 PM »
I'm always in favor of maxing out IRA's whenever possible.  Once the opportunity to save tax deferred or with tax free earnings is missed, it's gone forever.

In your shoes, after maxing the IRA, I would look for an opportunity to refinance at a record low interest rate.  If I could not do that, I would verify with the lender what I had to do to get rid of the PMI, and aim toward that.   If you have an FHA loan, the hurdle for getting out of MI is much higher.

I am leaning towards doing that as I really like the idea or always maxing my IRA. Also I am not sure if I can refinance as the loan is only 3-4 months old and my interest rate is sitting at a fixed 3.75%, it is not a FHA loan.

Another Reader

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #5 on: December 18, 2012, 12:26:37 PM »
You are going to have a tough time getting an appraisal higher than your purchase price with an unseasoned loan, unless you have done a lot of documentable improvements.  In your shoes, I would max out the IRA.  If I planned to keep the house for more than a couple of years, I would then throw money at the loan.  If rates stay where they are, you should be able to refi, drop the PMI, and finance a smaller amount at a significantly lower rate.  That's a winning combo to me.

MrD

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #6 on: December 18, 2012, 02:06:57 PM »
You are going to have a tough time getting an appraisal higher than your purchase price with an unseasoned loan, unless you have done a lot of documentable improvements.  In your shoes, I would max out the IRA.  If I planned to keep the house for more than a couple of years, I would then throw money at the loan.  If rates stay where they are, you should be able to refi, drop the PMI, and finance a smaller amount at a significantly lower rate.  That's a winning combo to me.

Sounds like a winner to me too, thanks so much.

needmyfi

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #7 on: December 18, 2012, 06:05:33 PM »
Okay, let me say this is not my area, this is more a question, but am i correct in the following?


You need an additional 11k in equity to get rid of the pmi?  By putting 5k  toward the principal along with your tax return of 4 k and a few additional payments to bring that figure up to a total of 11k, you can save about 1.2 k a year for 4 or 5 years?  I get that the math is not nearly as simple as that since we also have to compare the investment return on thr Roth invested money which is certainly going to be higher than the interest saved on the mortgage,  and then of course the tax savings down the road, but those figures don't seem like a slam dunk for the Roth to me.  There is also additional money in the extra 1,2k a year that could be invested.
« Last Edit: December 19, 2012, 01:58:31 AM by needmyfi »

TomTX

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Re: Max out 2013 IRA or try to kill PMI?
« Reply #8 on: December 19, 2012, 09:11:39 PM »
I'd kill the PMI. Be prepared for a fight. PMI is evil, and hugely profitable for the bank.