Poll

Remove PMI or Buy VTSAX?

Recast to Eliminate PMI
5 (55.6%)
Buy VTSAX
0 (0%)
Pay off enough to eliminate PMI (no recast)
4 (44.4%)

Total Members Voted: 9

Author Topic: Remove PMI or Buy VTSAX  (Read 471 times)

Platypuses

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Remove PMI or Buy VTSAX
« on: May 29, 2020, 08:05:23 AM »
We recently bought a new house, and had to take on PMI since we were only able to put 10% down. Since closing we have sold our previous house and are debating how to invest the funds:

Option 1.) Recast our current loan and put 10% more to new home, giving us a 80% LTV ratio, effectively removing PMI. This would be $52.5k + a $250 recast fee. We have an appraisal that is less than 120 days old, so we don't have to do that again. The math looks like this is a 4.96% ROI. This will save us $74.71/mo in PMI for 7 years and ~$75k in interest over 30 years + it lowers our monthly payment by ~$225/mo

Option 2.) Buy VTSAX. I like that this is more liquid, and that the markets aren't at all time highs right now. All retirement funds/HSA are maxed for the year.

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Edit: Added 3rd option thanks to previous comments

3.) Don't recast. Pay $62.8k to reach 78% LTV ratio. Not sure if the ROI is better here (our interest rate is 3.25%). But looks like loan will be paid off 6 years early, and save $88k in interest over the life of the loan.
« Last Edit: May 29, 2020, 12:11:47 PM by Platypuses »

JLee

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Re: Remove PMI or Buy VTSAX
« Reply #1 on: May 29, 2020, 09:26:01 AM »
You shouldn't have to recast it -- a lump sum payment to get you to 80% LTV is likely sufficient.

terran

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Re: Remove PMI or Buy VTSAX
« Reply #2 on: May 29, 2020, 11:51:33 AM »
You shouldn't have to recast it -- a lump sum payment to get you to 80% LTV is likely sufficient.

Agreed. You might need to get to 78% LTV, but whatever it is, PMI should be capable of dropping off once you've paid enough off. Regardless, I would do it.