Opportunity Cost of Private Mortgage Insurance...?

[Flat9MKE]

My fiance and I are starting to look at purchasing a house.  In my mind, it seems best to minimize the downpayment and keep my capital in the stock market where the returns are generally higher (in theory) than the appreciation on a house.  MMM would advocate for projecting a 7% compounded annual return on capital in the stock market and a 1-2% (maybe??) simple annual return on capital invested in a owner-occupied house.

Obviously, the math is more complicated if you start factoring in things like applying what you would have spent on PMI as additional principal paydown.

I'm hoping someone on here has done the math, but if not, could be a fun project for me to work on myself and share the results.  Let me know your thoughts!


P.S. I did a few searches and am not finding an in-depth discussion on this, but apologies if this has been reviewed here already.

[Papa bear]

I've paid PMI for multi units where I lived. The plan was to remodel, rent, refinance. Only had a year of PMI and only needed to put 3.5% down.  Place is a cash cow now.


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[thd7t]

I've paid PMI for multi units where I lived. The plan was to remodel, rent, refinance. Only had a year of PMI and only needed to put 3.5% down.  Place is a cash cow now.


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This is pretty much the only way that paying PMI makes sense to me.  PMI is like an added interest rate on the top 20% of your mortgage.  The other factor with it is that it does not decrease as the top 20% of your loan amortizes, so the effective rate becomes higher as you pay it down. 

If you plan on using it, you should definitely have a strategy to pay it as briefly as possible.

[Cwadda]

I bought a $350k multi family with 3.5% down. I would've had to put $88k down, but put down $13k instead. To me, the $237/month (ouch) PMI was worth it. It cash flows and I live for free. It would really depend on your specific deal, but I think the opportunity cost can definitely be worth it.

[clarkfan1979]

The quickest way to real estate riches is to put less money into the deal and save the money for other deals. If you have plenty of money I don't see anything wrong with putting 5% down and saving the 15%  for other deals.