Pay off PMI or student loans

[Retireme32]

Hi, thanks in advance to anyone who wished to give their 2 cents on this.  So I am trying to decide which to pay off aggressively first - I have student loans totaling $22,000 and paying them off would give me back $180 per month.  Paying $1700/month for 9 months would get my loan down to 80% LTV and thus rid me of my PMI that is $233/month of course if I do that I still have my mortgage  and if I do the student loans then those are debts that I would be completely rid of. Also worth noting, this is a rental property and I've been renting since 2010 and I'm still not in the black yet- partially b/c I started off offering utilities with rent (My bad) and so I have to work that out of the lease  agreement but taking out the $233 would effectively put me in the black as well.   Although when I re-do the lease (no later than March 2014) I'd also be in the black regardless of PMI.   What to do, what to do......   

[Rust]

If your figures are correct and paying $1,700/mo for 9 months gets you out of PMI, I'd go that route and snow ball it into my education loans.

$1,700 * 9 mo = $15,300.  Then you can start making a payment of $1,933/mo towards your student loans.  Rough math ~2k/mo on 22K and it's paid off in 11 months.

20 months till debt free.

[nawhite]

I'd say it depends on the interest rates. I'm in a very similar situation and I decided to go with the PMI payoff first because the math worked out better but only barely:

For me: mortgage at 3.75% student loans at 6.8%, montly PMI at $85 and needed $22k to get to 80%

So the effective rate of borrowing for the 22k was 3.75% + ($85*12)/$22k = 3.75% + 4.63% = 8.38% which was more than the 6.8% on the student loans. So for me it was more worth it to pay off the mortgage to get rid of the PMI.

Note that the closer you get to the 80% LTV the more worth it it is to pay off the mortgage. But regardless, I can't judge for you without knowing the numbers.

[Retireme32]

Sorry - the facts - okay - the student loans are two - one is at 7% and the balance is $7,208.  The other student loan is at 4% and balance is #13,914.  I also noticed that I have an outstanding balance of 7.62% interest from when I deferred when I first go out of college (very anti-mustachian days)

The house is 6% interest - balance is $184,500 - needs to be $163,500 to be LTV 80% ,right now doing nothing it is scheduled to reach that at 2019.  Needless to say this is beyond unacceptable to me.  :)   

okay now, what would you advise? 

[nawhite]

I'm confused by what loan the 7.62% is for but we'll go with that as the first student loan you'll pay back. Now how much is the PMI costing you:

total amount of money you'll need to spend is $21,000 and the cost of PMI is $233/month or $2796/year. So what we're saying is that the cost of you not putting that $21,000 towards the mortgage is $2796/year in addition to the 6% on the mortgage. So whats the effective interest rate on that $21,000?

2796/21000 = 13.3% + 6% = 19.3%!!! OMG pay this off!!!

This is worse than most credit cards! This is terrible debt! Is there any way to pay more that $1700/month on this? Can you restructure your student loans? Can you get a different PMI company? That rate is double mine for a similar cost house. I'm not sure but I think that you can change PMI providers without refinancing.

In any event, you were right, you should pay off the mortgage down to 80% as fast as possible.

[Retireme32]

Okay.  Done.  I'll pay that off first.  Thanks.  oh and to answer your question -the PMI is part of my VHDA FHA loan so I'm like 90% sure there is no way to get out of that .  It looks like if I start paying it off in November it will be done in August of next year but I may be able to put more towards it later in the year after I fix the leases to not include utilities. 

[LauraG]

Check the conditions for the PMI before you get excited about paying down your mortgage enough to not owe PMI. We're prepaying our VHDA FHA loan, but even if we get down to below 80% LTV we still have to pay PMI for five years from the origination date. (The prepayments still help, since we'll be getting the PMI cancelled at exactly the 5 year mark, rather than sometime in the future when the "regular" amortization schedule would have use below 80% LTV).

[lackofstache]

LauraG got to it first, but she's right. Usually there are minimum terms to pay the PMI whether or not you get to 80% LTV. It's definitely worth getting there on time, but use of extra funds may be better spent on the student loans.