Increase down payment or invest

[Mr. Anderson]

When my late wife and I purchased a house we didn't put much down on the house. After my wife's passing, and after much debate on whether to move or stay in the house, I decided to stay in the house. I have a newborn and 5 year old with a lot of support in the neighborhood, so I'm not ready to move. Therefore, I am refinancing the mortgage (30 year term) to reduce my monthly payments until my daughter is out of daycare ($1400/mo), in which I can put more money into the monthly payments.

Current mortgage (4.685%):
P&I: $1301.86
PMI: $198.85

Refinancing (3.5%)
P&I: $942.87
PMI: ~$53.00

The house was appraised at $247,000 and my current mortgage is at ~$211,000. I was thinking about putting additional money down (about $13,400) to eliminate the PMI and lower the monthly payments to about $887. I already have a six month emergency fund, with an additional $18,000 in savings. Would it make sense to put more money down to eliminate the PMI, invest the money, or something else? I also have about $25,000 in student loan debt with the rate at 1.25% ($220.27/mo). Let me know what additional information you need, and thanks for any advice.

[Mother Fussbudget]

Yes, eliminate the PMI.  That's money you're throwing down the drain every month.

[Choices]

Definitely put enough money down to eliminate the PMI. You might also compare the payment with the 30yr vs the 15yr-- the 15yr usually has a lower interest rate and the payments are often pretty close. Might as well pay it off in half the time, right?

[thd7t]

The PMI is like an additional 3.5% interest on the $18k that you would not pay upfront. So you get a 7% return by eliminating PMI. However, as the principle diminishes, the PMI doesn't reduce, so it's effective rate increases. If you paid the $18k off over 2 years, the effective rate/cost rises to 10.5%. This makes your $18k upfront a really good deal. Further, if you don't prepay (which at 3.5% you may not wish to), the PMI rate goes effectively higher.

Tldr: pay the $18k upfront and get a really good return.

[Slee_stack]

PMI is almost as evil as a Title Loan.

Pay just enough to eliminate it.

[thd7t]

PMI is almost as evil as a Title Loan.

Pay just enough to eliminate it.

PMI is evil, but title loans can have effective rates of over 1000%. It's a whole different level of evil. I heard a radio story about a study of payday loans where they had found loans with 1800% effective rates! Poison!