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Is it worth accelerating mortgage payment to avoid PMI?
Posted on 1/22/16 at 6:48 pm
Posted on 1/22/16 at 6:48 pm
I have a conventional loan on my house when I moved to Oxford, MS. I am currently saving about $2,000/month which is mostly going to student loans now which is $6,500. I am paying $100/month on PMI. The APR on the mortgage is 4.25%, but since PMI is tax deductible, would this warrant accelerating my principle balance until I reach the 20% equity plateau so I can stop wasting money on PMI - thoughts?
This post was edited on 1/24/16 at 2:43 pm
Posted on 1/22/16 at 6:59 pm to rpg37
When did you get your FHA loan? In certain situations with a FHA loan, you have to pay PMI for the life of the loan. How close are you to 20%?
Posted on 1/22/16 at 7:01 pm to LSUSUPERSTAR
I just closed on the house in July...I am around 6-7% in equity now.
Posted on 1/22/16 at 7:05 pm to rpg37
Here is how I would view PMI...
Roll it into your Mortgage interest rate after tax deduction.
Determine which is higher:
1. The return you can make on investing that $ (term is the art of the science but recommend estimating on like for like basis as 2 and 3 below)
2. The cost of student loan debt
3. The cost of Mortgage interest debt (including PMI)
Put your $2,000 towards the one that floats to the top.
Note: this is perhaps over-simplified but posting to make the point of how I approach $ investments / debt reduction.
I am certain that others will have opinions that differ from mine. To that, I yield this posting string.
Most important - be who you are. If comfortable working positive spread in your overall portfolio of investment return less debt, then invest away. If you are a peace of mind Dave Ramsey type that wishes debt on no one, rid of your debt.
Sorry for the easy answer, but I truly believe this is the honestly correct answer.
Roll it into your Mortgage interest rate after tax deduction.
Determine which is higher:
1. The return you can make on investing that $ (term is the art of the science but recommend estimating on like for like basis as 2 and 3 below)
2. The cost of student loan debt
3. The cost of Mortgage interest debt (including PMI)
Put your $2,000 towards the one that floats to the top.
Note: this is perhaps over-simplified but posting to make the point of how I approach $ investments / debt reduction.
I am certain that others will have opinions that differ from mine. To that, I yield this posting string.
Most important - be who you are. If comfortable working positive spread in your overall portfolio of investment return less debt, then invest away. If you are a peace of mind Dave Ramsey type that wishes debt on no one, rid of your debt.
Sorry for the easy answer, but I truly believe this is the honestly correct answer.
Posted on 1/22/16 at 7:06 pm to BayouSizzle
note: # 3 above is net of tax deductions (this is important -- sorry I missed above)
Posted on 1/22/16 at 7:07 pm to rpg37
How big is your mortgage? $1,200 for pmi?
Posted on 1/22/16 at 7:09 pm to Old Sarge
quote:
How big is your mortgage? $1,200 for pmi?
Principal balance is $134,435
PMI/FHA Ins Dis is $99.28
Posted on 1/22/16 at 7:11 pm to rpg37
So the $100 is your pmi AND your homeowners?
Posted on 1/22/16 at 7:13 pm to Old Sarge
Sorry, no...all this is new to me and kind of streams together in my mind
PMI is $99.28
My annual premium for hazard insurance is $906.
PMI is $99.28
My annual premium for hazard insurance is $906.
Posted on 1/22/16 at 7:16 pm to rpg37
Wow I had no idea pmi was that much, I've always had 20% equity in my houses.
Heck yes I'd work hard to get to where you didn't have to pay that.
Heck yes I'd work hard to get to where you didn't have to pay that.
Posted on 1/22/16 at 7:19 pm to Old Sarge
It is calculated at the original loan balance x 1% and then divided by 12 for monthly payments until 20% is achieved. I am unsure how much is tax deductible, so it is really hard to quantify what the best route is.
Posted on 1/22/16 at 7:24 pm to rpg37
If you closed an FHA in July you have the PMI for the life of the loan. At least, that is how I understand the recent changes.
Posted on 1/22/16 at 7:31 pm to AnonymousTiger
Can I refinance my loan later?
Posted on 1/22/16 at 7:47 pm to rpg37
quote:
Can I refinance my loan later?
Unless they have changed the rules in the last few years, yes.... You will have to pay for a new appraisal and if you then have 20% equity or put down more cash to get there, you will avoid pmi.
Posted on 1/22/16 at 7:51 pm to Lsut81
And this is the only way to avoid paying PMI forever? Seems worth doing, no?
Posted on 1/22/16 at 7:58 pm to rpg37
quote:
Seems worth doing, no?
Depends on closing costs, refi rate, and how long you plan on staying in the house
Posted on 1/22/16 at 8:02 pm to Lsut81
Okay, this may change things...I just pulled out the settlement statements on both my houses. This one I am referring to is a Conventional Loan (I think it was a Freddie Mac & Fannie Mae). Does this changes things?
FreddiMac.com
FreddiMac.com
quote:
Fortunately, when it comes to the size of your down payment you have choices – and a growing number of today's buyers are putting down between 5 and 10%. Sure, you'll have to pay PMI for a conventional loan with a down payment of less than 20%, but it means you'll be able to take advantage of today's historically low mortgage rates and affordable home prices in many parts of the country. And, once you've built equity of 20% in your home, making the amount you owe on your mortgage 80% or less of its value, you can cancel your PMI and remove that added expense from your monthly payment. For borrowers with FHA loans, you'll be responsible for paying FHA mortgage insurance premiums for the life of the loan.
This post was edited on 1/22/16 at 8:04 pm
Posted on 1/22/16 at 8:20 pm to AnonymousTiger
quote:
If you closed an FHA in July you have the PMI for the life of the loan.
This is correct
Posted on 1/22/16 at 9:31 pm to Dagoose
If its conventional, you can request a new appraisal and if you are better than 80%LTV, then PMI can be removed.
If its conventional, it should automatically remove at 78% LTV based on previous appraisal.
If FHA after July 2013, the FHA monthly MI is for the life of the loan. Calculated based on remaining principal balance each year.
If its conventional, it should automatically remove at 78% LTV based on previous appraisal.
If FHA after July 2013, the FHA monthly MI is for the life of the loan. Calculated based on remaining principal balance each year.
Posted on 1/22/16 at 9:48 pm to SomethingLikeA
quote:
If its conventional, you can request a new appraisal and if you are better than 80%LTV, then PMI can be removed.
If its conventional, it should automatically remove at 78% LTV based on previous appraisal.
Yeah, I had to look it up because I was getting my mortgages mixed up. Fortunately, this one is conventional. My other is FHA but I am selling it this year anyway. Thank God!!
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