Quick background:
Married (both 25y/o) with one son.
52k year salary (wife stays home)
Assets:
Cash: $3,300.00
Car: $5,000.00
401k: $12,283
House: $83,000.00
Total: $103,583.00
Liabilities
Mortgage: $72,552 @ 3.865%
I will be getting a $10,000 bonus and I'm thinking of dumping some of that on the mortgage to remove PMI. Based on my background above, is this a good idea? Can you double check my math below?
80% LTV will be reached when the mortgage hits $66,400. (83,000 * .80 = 66,400 ).
Current mortgage is at $72,552, so I will need to pay $6,152 to get to 80% LTV. (72,552 - 66,400 = 6,152)
I pay $30.50 a month in PMI. Essentially by not paying down the mortgage to 80% LTV I am paying $30.50 a month to borrow $6,152.
12 months of PMI is $366.00 (30.50 * 12). So APR would calculate to 366/6152 or approx 5.9%.
Also, if I payed down the mortgage by $6,152 I would not pay regular mortgage interest on that money. Since my interest rate is 3.865%, I'm essentially paying 3.865% + 5.9% = 9.765%
This is a no brainer right? I should pay the mortgage down $6,152 because I'm essentially paying 9.765% on that money.