Author Topic: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans  (Read 4399 times)

Broadway2019

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Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« on: December 24, 2016, 02:32:48 PM »
I am selling a rental property and will receive about $55k when all is said and done. In addition, I own a primary property I recently bought and only put about 3% down. The figures are below.

Purchase Price - $362,900
Mortgage Balance - $350,000
PMI - $192 a month

My question is should I get rid of PMI or pay down my student loan debt. Student loans are at 4% and I owe $47k. I am leaning towards putting all $55k towards the mortgage but now am thinking maybe I should split it. I really am not sure. Thank you for any advice.


Broadway2019

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #1 on: December 24, 2016, 02:42:53 PM »
One last thing, my mortgage is at 20 years @ 3.5%

Spork

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #2 on: December 24, 2016, 02:44:50 PM »
Historically, my PMI has been about 1%.  If your student loans are 4%, it sounds the math-preferred choice is to pay off the 4% loan fee over the 1% PMI fee.

NoNonsenseLandlord

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #3 on: December 24, 2016, 05:14:54 PM »
Get rid of the PMI.  Then use the extra to pay off the student loans.

The PMI is 1%, plus the 3.5% interest on the mortgage.  That's 4.5%.  I assume the $55K goes all to principle, and the PMI magically goes away.  Make sure that is what happens.
« Last Edit: December 24, 2016, 05:17:04 PM by NoNonsenseLandlord »

clarkfan1979

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #4 on: December 26, 2016, 09:42:06 AM »
PMI first, student loans second, regular mortgage third.

Spork

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #5 on: December 26, 2016, 11:05:20 AM »
I'm not sure why it seems counter intuitive to me... but since a bunch of folks said apply it to the House loan first (to get rid of PMI)... I ran the numbers

option 1: pay the windfall towards the house to get rid of PMI:
interest and fees total: $105,517
both loans paid off in 206 months

option 2: pay off the student loan, then apply the balance to the house
interest and fees total: $133,321
both loans paid off in 229 months

My original "pay the 4% loan first" is wrong, wrong, wrong.  Pay towards the house to get rid of PMI as the others suggested.


piethief

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #6 on: December 26, 2016, 03:57:52 PM »
I would personally pay off the student loans, and eliminate that payment instantly.  I'd put the remainder towards the principal, then take the payment I'm not making towards the student loans, and put it towards the principal as well, until you can eliminate PMI.

Another consideration, no matter which way you go, is you may not be able to eliminate the PMI right now.  You recently purchased the house.  Many loans with PMI have a minimum duration the PMI will be on the loan (like 5 years) no matter how much principle you pay down or how much the home appreciates.

Ebrat

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #7 on: December 27, 2016, 03:52:00 AM »
Get rid of the PMI.  Then use the extra to pay off the student loans.

The PMI is 1%, plus the 3.5% interest on the mortgage.  That's 4.5%.  I assume the $55K goes all to principle, and the PMI magically goes away.  Make sure that is what happens.

Even worse, they're really only paying PMI to borrow the gap between the current loan-to-value and 80% LTV (looks to be about 60k).  So they're paying 3.5% on the 60k, plus $192*12, which is almost 4%.  Total is over 7%.

csdreaming

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #8 on: December 27, 2016, 06:13:06 AM »
PMI absolutely.

I saw one person say that if PMI was historically 1% it would be equal with the student loans. That assumed the student loans are the same size as the mortgage which they are not. Furthermore, I don't believe you can deduct PMI, which you can deduct mortgage interest, and to a lessor degree, student loan interest.

Another poster commented that the minimum time for PMI to be on the mortgage is 5 years. That seemed off and according to Nolo it is 2 years. In fact, according to a federal law the PMI must be canceled when the mortgage is paid down to 78% of the loan. You must inform them of this in case they don't bother to look.
http://www.nolo.com/legal-encyclopedia/private-mortgage-insurance-pmi-30108.html

rageth

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #9 on: December 27, 2016, 08:39:22 AM »
PMI absolutely.

I saw one person say that if PMI was historically 1% it would be equal with the student loans. That assumed the student loans are the same size as the mortgage which they are not. Furthermore, I don't believe you can deduct PMI, which you can deduct mortgage interest, and to a lessor degree, student loan interest.

A quick Google search (0 tax code knowledge otherwise) states that PMI is deductible if the loan was originated in 2007 or afterwards and AGI is less than $100k (filing jointly) or $50k single.

I only looked since I am in a very similar situation now trying to figure out what our best option is with $32k in student loans and $20k in mortgage principal to reach the 80% threshold to eliminate PMI.

Broadway2019

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #10 on: December 27, 2016, 02:14:11 PM »
Turns out I cannot deduct student loan interest or PMI since my AGI is above $115k. It is ridiculous since I am paying almost $1500 a month on student loans. To be able to pay the much you must make a lot.

csdreaming

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #11 on: December 28, 2016, 02:22:51 AM »
PMI absolutely.

I saw one person say that if PMI was historically 1% it would be equal with the student loans. That assumed the student loans are the same size as the mortgage which they are not. Furthermore, I don't believe you can deduct PMI, which you can deduct mortgage interest, and to a lessor degree, student loan interest.

A quick Google search (0 tax code knowledge otherwise) states that PMI is deductible if the loan was originated in 2007 or afterwards and AGI is less than $100k (filing jointly) or $50k single.

I only looked since I am in a very similar situation now trying to figure out what our best option is with $32k in student loans and $20k in mortgage principal to reach the 80% threshold to eliminate PMI.

Ah, good to know.

csdreaming

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #12 on: December 28, 2016, 02:38:44 AM »
Turns out I cannot deduct student loan interest or PMI since my AGI is above $115k. It is ridiculous since I am paying almost $1500 a month on student loans. To be able to pay the much you must make a lot.

You can only deduct the first $2500 of student loan interest, and only, if I remember, if your MAGI is below ~80k.

1500 a month is ridiculous. My loans are 31k and I pay less than 300 a month. Check your repayment plan.

I decided to do some math 67 (55 + your payed off difference) / 362 ( original mortgage) is 0.185 = 18.5%. According to that Nolo article you need to get this to 22% to get the PMI taken off. If you haven't factored in taxes from that property sale, the student loans might be a safer (and with your repayments, a better option).

Broadway2019

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #13 on: December 28, 2016, 12:16:10 PM »
I am paying back $50k in 3 years - reason for $1500 a month payments. Sometimes I pay more depending on money that month. I am thinking PMI is the way to go. Once that is gone, my student loans will be gone soon too and I will be in a really good spot.

Thanks everyone for the comments!

Broadway2019

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #14 on: December 28, 2016, 12:17:38 PM »
Also, from what I understand I don't pay any taxes as long as I use the money to buy a property.

Kelly

csdreaming

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #15 on: December 28, 2016, 06:23:25 PM »
Also, from what I understand I don't pay any taxes as long as I use the money to buy a property.

Kelly

I don't remember the details, but I believe it doesn't work if you already bought the property, also you need to have lived in the property as well for at least a year. You should really see a CPA before you make any more plans.
« Last Edit: December 28, 2016, 06:25:01 PM by csdreaming »

braje

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #16 on: December 28, 2016, 06:34:56 PM »
Also, from what I understand I don't pay any taxes as long as I use the money to buy a property.

Kelly
Are you talking about a 1031 exchange?

Another consideration, no matter which way you go, is you may not be able to eliminate the PMI right now.  You recently purchased the house.  Many loans with PMI have a minimum duration the PMI will be on the loan (like 5 years) no matter how much principle you pay down or how much the home appreciates.
  This.. Ask your mortgage holder about the requirements to get rid of the PMI.

Slow&Steady

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #17 on: December 29, 2016, 08:35:00 AM »
Another consideration, no matter which way you go, is you may not be able to eliminate the PMI right now.  You recently purchased the house.  Many loans with PMI have a minimum duration the PMI will be on the loan (like 5 years) no matter how much principle you pay down or how much the home appreciates.

Is this a conventional loan or an FHA loan?  If it is FHA you are paying MIP not PMI (although they are similar) and any loan originated after June 2013 will have MIP for the life of the loan.  You will have to refinance to remove MIP.  Similarly if your current loan has a minimum duration (usually 5 years) you may not be able to remove PMI without refinancing either. 

Metric Mouse

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Broadway2019

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Re: Pay Off Mortgage - Avoid PMI or Pay Off Studen Loans
« Reply #19 on: January 05, 2017, 10:27:36 AM »
Lots of assumptions. It's a conventional loan and as long as I get to 78% it is gone.

http://www.bankrate.com/finance/taxes/capital-gains-and-your-home-sale-1.aspx

Seems like it is tax free with the new rules.
« Last Edit: January 05, 2017, 10:47:28 AM by kwarden13 »