Author Topic: Paydown Mortgage to get rid of PMI?  (Read 1043 times)

Fae

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Paydown Mortgage to get rid of PMI?
« on: February 21, 2019, 12:55:13 PM »
When my husband and I bought our house a few years ago, we only put down an 8% down payment so we have to pay for mortgage insurance (*facepunch* I know, but it was that or my marriage). We only have 14 more payments until we hit the 80% LTV ratio and can get the PMI removed OR we can pay the $2980.42 to bring it to the 80%LTV right now and get it removed after the payment clears. The PMI is $63.27 a month so in 14 months we'll have paid another $885.78. Spending almost 3,000 to save less then 1,000* doesn't seem like the best use of our money, however, I really hate paying this stupid F$%@ing fee every month. I would love to get rid of paying PMI but I want to do what is best for us long term. So what would you do? Is there another way I should be looking at this?


*I know it will technically save us more than that as we will pay a lot less in interest (4.5%APR) but as we won't see that savings until the end of the loan I think it's negated by the potential market returns of keeping that money invested over the same time period.

coldsteel333

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Re: Paydown Mortgage to get rid of PMI?
« Reply #1 on: February 21, 2019, 01:03:44 PM »
Im new to the forum and things but ill give my opinion on it. without know anything else about your situation, I would certainly do it to save a thousand. Just think that is a 25% Return on investment. will it compound no its a pretty quick return on money you would spend anyway.

Boofinator

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Re: Paydown Mortgage to get rid of PMI?
« Reply #2 on: February 21, 2019, 01:45:43 PM »
As PMI gets close to getting paid off, the return on investment starts getting extremely promising. My first question, have you called the bank to confirm they will remove PMI at 80%? I've not personally had PMI, but I am under the impression you have to get down to 78% of the original purchase price before PMI comes off. Given that detail, I wouldn't pay off PMI unless 1) you were fully maxing tax-deferred buckets and 2) your combined PMI and mortgage interest rate was at least 10% over the remaining time period. Given your mortgage rate and PMI rate, you're paying close to 30% interest right now ($63.27*12/2980.42 + 4.5%), so yes, I would probably pay it off.

coldsteel333

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Re: Paydown Mortgage to get rid of PMI?
« Reply #3 on: February 21, 2019, 02:14:57 PM »
For anyone reading this post as a FYI. i was able to refinance my home with zero points and closing cost of about 1500 which based on appraisal got me to 80 LTV to remove my PMI which saved over 5000 and with the interest rate reduction also was able to knock 10 years off my loan for with a lowered mortgage payment.

RWD

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Re: Paydown Mortgage to get rid of PMI?
« Reply #4 on: February 21, 2019, 02:49:47 PM »
As PMI gets close to getting paid off, the return on investment starts getting extremely promising. My first question, have you called the bank to confirm they will remove PMI at 80%? I've not personally had PMI, but I am under the impression you have to get down to 78% of the original purchase price before PMI comes off. Given that detail, I wouldn't pay off PMI unless 1) you were fully maxing tax-deferred buckets and 2) your combined PMI and mortgage interest rate was at least 10% over the remaining time period. Given your mortgage rate and PMI rate, you're paying close to 30% interest right now ($63.27*12/2980.42 + 4.5%), so yes, I would probably pay it off.

^^^ This. Because the amount of PMI does not scale with how close you are to 78/80% LTV it often becomes very advantageous to get rid of it as you get close. I have often recommended reevaluating the PMI removal ROI on a periodic basis for this reason. I would absolutely spend* $3k to save ~$900.

* - you're not actually spending it, as you realize in your own asterisk note

Kayad

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Re: Paydown Mortgage to get rid of PMI?
« Reply #5 on: February 22, 2019, 01:29:06 AM »
Spending almost 3,000 to save less then 1,000* doesn't seem like the best use of our money, however, I really hate paying this stupid F$%@ing fee every month.

Spending ~3k to save ~1k is a GREAT use for your money!  That is ~33% ROI.  Verify that is all you need to kill the PMI and do it ASAP!

six-car-habit

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Re: Paydown Mortgage to get rid of PMI?
« Reply #6 on: February 22, 2019, 01:39:22 AM »
 Many years ago , and a couple houses ago, I had a loan with a PMI payment.  I had not paid down 20% of the original loan yet, but i got an appraisal [ about $400 at the time]  that showed the value on the house had gone up enough , that the remaining balance on the loan was less than 80% of the new higher appraised value.  Mortgage company accepted this and took off the PMI.   
   This is not the situation for original poster but may be helpful to someone else reading the thread.

coldsteel333

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Re: Paydown Mortgage to get rid of PMI?
« Reply #7 on: February 22, 2019, 05:13:40 AM »
Spending almost 3,000 to save less then 1,000* doesn't seem like the best use of our money, however, I really hate paying this stupid F$%@ing fee every month.

Spending ~3k to save ~1k is a GREAT use for your money!  That is ~33% ROI.  Verify that is all you need to kill the PMI and do it ASAP!

Thanks for clarifying my previous math or 25 % lol. Have a kid with strep is my defence : ). i know we all wish our 401k made 33 % in a few months!

Fae

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Re: Paydown Mortgage to get rid of PMI?
« Reply #8 on: February 22, 2019, 08:16:28 AM »
Thanks everyone for the thoughtful responses. I figured it was the right call, I just needed a push. I have a very hard time spending large amounts of money, even if it's better financially, not having it readily available freaks me out.

For anyone reading this post as a FYI. i was able to refinance my home with zero points and closing cost of about 1500 which based on appraisal got me to 80 LTV to remove my PMI which saved over 5000 and with the interest rate reduction also was able to knock 10 years off my loan for with a lowered mortgage payment.
I looked into this last month but we were only offered interest rates that were the same or higher; we have a better credit score but our income has decreased since we bought the house.

As PMI gets close to getting paid off, the return on investment starts getting extremely promising. My first question, have you called the bank to confirm they will remove PMI at 80%? I've not personally had PMI, but I am under the impression you have to get down to 78% of the original purchase price before PMI comes off. Given that detail, I wouldn't pay off PMI unless 1) you were fully maxing tax-deferred buckets and 2) your combined PMI and mortgage interest rate was at least 10% over the remaining time period. Given your mortgage rate and PMI rate, you're paying close to 30% interest right now ($63.27*12/2980.42 + 4.5%), so yes, I would probably pay it off.
Yes, the bank will remove PMI when the LTV is 80%, if I call and ask them to and maybe provide proof the house value hasn't decreased (done on a case by case basis), other wise they will do it automatically on the date it is first scheduled to reach 80% or the LTV reaches 78%.

Gone Fishing

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Re: Paydown Mortgage to get rid of PMI?
« Reply #9 on: February 22, 2019, 05:10:31 PM »
Paying off debt is not "spending" money.  You spent the money when you bought the house.  Pay down the loan.