Author Topic: Should I get ride of my PMI- check my math  (Read 1049 times)

BCpuppy

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Should I get ride of my PMI- check my math
« on: March 11, 2017, 01:49:31 PM »
Okay, so we bought a townhouse 2 years ago with only 8% down.  Not the smartest move in the world.
My current mortgage is 269500 sales price, 21000 down
Outstanding mortgage 240000 as of today
PI: 1167
PMI: 128
Taxes: 88
Total is 1384 and I add an additional 116 principal for an even $1500

If I put in the 25000 that I had earmarked for school, we can finally get out of PMI.  At our current rate, we will get rid of PMI somewhere around month 62.  Thats an additional 5760 in PMI payments.  AND we would save 43,000 in interest over the life of the loan, even if we never put in another additional payment.  At our current additional monthly payment, we only save 29,000 in interest even though the pay off date is within months of each other. 

So to me, the 25000 saves us 5700 over the next 5 years and a total of 19700 over 25 years. And an additional 250$ of cash flow each month.

But if i do this, I may have to pay 5.3% in student loans.  I plan on paying them off within about two years, paying only about 1500 in total interest.

So paying off seems like a win, right?

freeedom

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Re: Should I get ride of my PMI- check my math
« Reply #1 on: March 11, 2017, 02:01:04 PM »
One thing to consider is PMI is not tax deductible but student loan interest is... maybe factor that into your math?

Also putting down $25,000 to get rid of your PMI results in a 23% return over the timespan you'd be paying. Seems like a win to me.

TaxChick

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Re: Should I get ride of my PMI- check my math
« Reply #2 on: March 11, 2017, 03:22:38 PM »
You might want to confirm with your lender that a formal appraisal is not required to remove the PMI.

Gimesalot

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Re: Should I get ride of my PMI- check my math
« Reply #3 on: March 13, 2017, 01:51:50 PM »
We are in a similar boat.  We want to get rid of PMI and have paid extra and have increased the value of our house in order to do so. 

When I looked at our bank's website, they require a formal appraisal at a fee of $400.  After looking at some reviews, I determined that in most cases, the bank requires the appraisal and then decides to not cancel the PMI regardless of the result of the appraisal.  So we are not moving forward.

Legally, the bank is only required to remove PMI on the month that is in your original amortization schedule.

Beach_Bound

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Re: Should I get ride of my PMI- check my math
« Reply #4 on: March 14, 2017, 08:30:20 PM »
I went through this a few years ago. I bought my house for $270k and put 10% down, so I owed $243k. The house appraised for $275k. I paid around $2000 extra towards the principal each month (thanks roommates!) until I owed $216k, which was 80% of the original loan (and <80% of the original appraised value). I contacted the mortgage company and requested that they remove the PMI. They required that I get a broker's price opinion (BPO), which is a quicker and cheaper version of an appraisal. The purpose was to check if the house was still worth at least $270k. The BPO cost $150. It said that the house was worth $250k. Bullshit. No way the house dropped $25k in value in a year. I tried to argue that point with the mortgage company, and they told me I could pay $400-500 for an appraisal to override the BPO.

I had no guarantee the appraisal would be any better. Instead, I borrowed $15k from my parents (we're very open about money and after watching me attack the mortgage, they knew I could pay them back quickly) and put it towards the mortgage. I then owed $200k, which was 80% of the BPO value of $250k. This time, my request to remove PMI was successful. If I had not been able to get a quick $15k loan, I would have continued to pay extra towards the principal until I owed $200k. That would have taken 8 months. The BPO was valid for 1 year.

The math usually heavily favors paying off PMI. It is essentially interest on the balance of your mortgage above 80% of the original loan. So in your case, 80% of the original loan is $215600. You are paying PMI on 240000-215600 = 24400. It's costing you $128 per month to secure $24400. That's an interest rate of 6.3%... right now. As you continue to make payments, that interest rate gets higher because you're paying the same PMI to secure a smaller amount of money.

If/when you're ready to remove PMI, contact your mortgage company to determine exactly how they evaluate your request. Understand how long an appraisal/BPO is valid, in case it comes back lower than you expect. They should send you their policies in writing.