Author Topic: Should I use Efund to get rid of PMI ?  (Read 2777 times)

SomedayStache

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Should I use Efund to get rid of PMI ?
« on: March 10, 2015, 07:44:41 AM »
Refinanced mortgage in 2012.
Loan amount at time of refinancing: $138,000.
House appraisal at refinancing: $150,000.

Now the loan balance is $124,800 and I'm very tempted to use our emergency fund to kick the balance below $120,000 and get rid of the $68/month we pay in PMI.  Following the usual mortgage schedule we won't get to <$120,000 until March 2016.

Two questions:
  • No where on the bank's mortage info does the $150,000 appraisal value show up.  Does the bank still know that they appraised it at $150,000?   Please don't tell me they go off the original loan amount.
  • As a single income family with three young children I don't know if I should dip into our Efund to do this.  I probably shouldn't....but I so want to.  Thoughts?

Possibly useful notes:
Our cash savings is $7k. 
Barebones monthly spend is $3k.
Another $5k is available in Roth contributions.
No debt other than mortgage, $70k in TSP, fairly secure federal government job.

netskyblue

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Re: Should I use Efund to get rid of PMI ?
« Reply #1 on: March 10, 2015, 08:29:16 AM »
I probably wouldn't.  What happens when something goes awry the month after you drain your efund?  Roof, major appliance, medical bill...

How long will it take you to save up 7k?

rocketman48097

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Re: Should I use Efund to get rid of PMI ?
« Reply #2 on: March 10, 2015, 08:39:07 AM »
I wouldn't think twice about it.  WE used to have an embarrassing 20k in savings.  Over the years, I have convinced my wife we didn't need nearly that much, and since we never paid PMI in the first place (20% down), we invested that money and are now down to 6k in savings.  Because we are frugal, this savings number grows by itself anyway, and we have to periodically invest the surplus to keep it down. 

Do a financial analysis, the rate of return on not having the PMI is far higher than your savings account earns, if anything.  It's likely a pittance.  Pay off the extra ASAP, before you log off your computer, then focus on replenishing the emergency fund with the savings and future frugality.

Like you said, you work for the government, so your chance of getting fired is about 0 to negative %. 

Mississippi Mudstache

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Re: Should I use Efund to get rid of PMI ?
« Reply #3 on: March 10, 2015, 09:00:39 AM »
I probably wouldn't.  What happens when something goes awry the month after you drain your efund?  Roof, major appliance, medical bill...

How long will it take you to save up 7k?

Put it on a 1-year interest-free credit card? Put it on a card and withdraw Roth contributions to pay it off at the end of the month? Really, the consequences aren't particularly severe if you have access to credit. I would do it in a heartbeat once I confirmed that paying the extra $4800 would indeed wipe out the PMI payments. Seriously, $68/month for the next year = $816. That's a 17% annual return on your $4800, and that's not even counting the money you save on your mortgage interest. It's a no-brainer.

frugaliknowit

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Re: Should I use Efund to get rid of PMI ?
« Reply #4 on: March 10, 2015, 09:07:23 AM »
1.  Find out from your mortgage servicer EXACTLY what it would take to get rid of PMI.
2.  Figure out what this would cost, and estimate the likelihood it would appraise high enough (look at and drive by comparables).

Then, weigh whether the cost is worth it along with the risk of having less cash.

My guess is, if the appraisal looks ok, go for it!!

SomedayStache

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Re: Should I use Efund to get rid of PMI ?
« Reply #5 on: March 10, 2015, 12:46:46 PM »
I'm definitely going to call up the bank and see if my 120k number will get us below the PMI threshold.

I like the idea of putting on an interest free credit card for 1 year.  I'll have to see if there are any offers like that around.

Thanks all.

SomedayStache

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Re: Should I use Efund to get rid of PMI ?
« Reply #6 on: March 10, 2015, 12:53:28 PM »
Thanks to a forum post here a few weeks ago I got the prepaid Target card and a new CITI double cash card so that I can pay my mortgage with a credit card.  I successfully paid my mortgage and electric bill this way last month.

The CITI card has a 0% interest introductory period.  I'll hit up Target to load the $5000 allowed per month and use it to pay the mortgage down below the PMI threshold. 

Double win!  I love this forum!

Mississippi Mudstache

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Re: Should I use Efund to get rid of PMI ?
« Reply #7 on: March 10, 2015, 01:04:43 PM »
Thanks to a forum post here a few weeks ago I got the prepaid Target card and a new CITI double cash card so that I can pay my mortgage with a credit card.  I successfully paid my mortgage and electric bill this way last month.

The CITI card has a 0% interest introductory period.  I'll hit up Target to load the $5000 allowed per month and use it to pay the mortgage down below the PMI threshold. 

Double win!  I love this forum!

Cha-ching! Credit arbitrage in your favor! Let us know if this works out for you. I get 0% introductory APR credit cards all the time to earn travel rewards, but I've never taken advantage of the free credit, only the miles.

SomedayStache

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Re: Should I use Efund to get rid of PMI ?
« Reply #8 on: March 10, 2015, 01:30:28 PM »
To be honest, I'm reluctant.  I'm very debt averse. 

The last time my family put something on credit temporarily (with the intent to pay it off a month later), life kicked us down and we didn't end up paying the debt off for another year....but in that case I didn't have a long interest free period as I do now. 

I just called the bank and my numbers are correct.  We're $4800 away from no PMI.  I'll be taking action of some sort, but it will probably be a combo of throwing a bit on a card as well as shrinking our Efund.  Also got to convince my hubbie of this plan - he's starting to think I've gone a bit batty listening to financial podcasts, reading this forum, and cycling thousands of dollars on a redcard.