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Message
Selling Securities to avoid PMI
Posted on 9/15/21 at 2:32 pm
Posted on 9/15/21 at 2:32 pm
First time homebuyer, and trying to decide if I should go with a low down payment and keep my positions in the market, or sell so that I can avoid PMI. Home is $350k so 20% down is $70k. I currently have $20k to put down. Interest rate is 2.99%. PMI is $134 per month. $134 x 12 is $1,608 per year, which is 3.2% of the other $50k I need to meet a 20% down payment. 3.2% + the 2.99% interest rate is 6.19%. Is my math correct here that I would be comparing a guaranteed 6.19% vs ~11% by staying invested?
And if PMI and interest are tax deductible then it seems to make sense to hold on to the stocks.
And if PMI and interest are tax deductible then it seems to make sense to hold on to the stocks.
8
Posted on 9/15/21 at 2:53 pm to Yeti_Chaser
I'm a big believer in opportunity costs.
I would keep my money in the market and eat the PMI.
It would be frustrating if there was a market correction during the time you're paying your PMI and you didn't pull out then you could be saying what if. But trying to time the market usually doesn't pay off well.
How far away are you from retirement?
I would keep my money in the market and eat the PMI.
It would be frustrating if there was a market correction during the time you're paying your PMI and you didn't pull out then you could be saying what if. But trying to time the market usually doesn't pay off well.
How far away are you from retirement?
Posted on 9/15/21 at 3:47 pm to Yeti_Chaser
Don't forget to consider the capital gains you'll pay on the growth when you sell the securities. So, you'll need to liquidate more than $50k. (Unless you're pulling from Roth or you're in zero LTCG bracket).
As first time home buyer be sure to have ample savings set aside for unforseen costs. You will inevitably spend more than you imagined getting established.
As first time home buyer be sure to have ample savings set aside for unforseen costs. You will inevitably spend more than you imagined getting established.
Posted on 9/15/21 at 3:47 pm to Yeti_Chaser
You can't afford the house. Is there any reason you can't put 20% down?
Posted on 9/15/21 at 3:50 pm to TorchtheFlyingTiger
Agreed. Lost count of the amount we spent year one to get established, and furnishing.
I would put it at about $8k. $134 a month PMI is not ideal but I wouldn’t cash out.
I would put it at about $8k. $134 a month PMI is not ideal but I wouldn’t cash out.
Posted on 9/15/21 at 3:53 pm to Bermuda99
Have to factor in furnishing, updates, painting, etc. I’m not going o say how much we apent. It damn it hurt
Posted on 9/15/21 at 3:55 pm to WITNESS23
quote:
How far away are you from retirement?
30-40 years so if theres a market correction I'd be ok.
quote:
Don't forget to consider the capital gains you'll pay on the growth when you sell the securities. So, you'll need to liquidate more than $50k
Good point, I could get to $50k without liquidating any short term investments but still long term cap gains tax is another reason to pay the PMI.
Posted on 9/15/21 at 3:58 pm to tygerfan1
quote:
You can't afford the house. Is there any reason you can't put 20% down?
I don't think this is true. I don't really keep cash except for my 3 month emergency fund and what I need to cover monthly expenses, which I dont want to use to buy the house. Everything else goes straight into my investment accounts. I started saving a bit more cash on hand this year since I wanted to buy a house, which is why I have $20k in cash to put down.
Posted on 9/15/21 at 4:50 pm to tygerfan1
quote:
You can't afford the house
What are you a 100yrs old?
Put the 3% down and go Conv vs FHA
Save the money and make money with it
You will refi within 5-7yrs anyways
Posted on 9/15/21 at 5:05 pm to Yeti_Chaser
Who is guaranteeing you 11%, and most importantly, what is their phone number so I can get a piece of this action?
I am a 'use other peoples' money to earn a positive spread' investor, but I think you are buying more house than you can afford, particularly given the risks that you are not considering.
Is this 11% return going to be sustained? How long vs the term of your mortgage? The only thing certain is you paying interest and PMI.
If you decide to re-balance your loan to value to rid of PMI, factor in taxes for realizing capital gains (ie, sounds like you will have to withdraw more to cover taxes)
Is the house new or older (ie, repair costs, home warranties, do you have a rainy day fund to cover a new A/C or that plumbing problem that is not in your spreadsheet yet)? Factor that in, as well.
Have you experienced a 2007-09 market correction (presume you withstood a March 2020...but for how long with the new home and a depleted market position?). These are not myths; I would not overly focus on them but I would plan for them.
Stress test your math and measure your mood if it becomes your reality, would be my 2 cents. Hell, take my 2 cents and just apply it to your PMI! Kidding.
Good luck.
I am a 'use other peoples' money to earn a positive spread' investor, but I think you are buying more house than you can afford, particularly given the risks that you are not considering.
Is this 11% return going to be sustained? How long vs the term of your mortgage? The only thing certain is you paying interest and PMI.
If you decide to re-balance your loan to value to rid of PMI, factor in taxes for realizing capital gains (ie, sounds like you will have to withdraw more to cover taxes)
Is the house new or older (ie, repair costs, home warranties, do you have a rainy day fund to cover a new A/C or that plumbing problem that is not in your spreadsheet yet)? Factor that in, as well.
Have you experienced a 2007-09 market correction (presume you withstood a March 2020...but for how long with the new home and a depleted market position?). These are not myths; I would not overly focus on them but I would plan for them.
Stress test your math and measure your mood if it becomes your reality, would be my 2 cents. Hell, take my 2 cents and just apply it to your PMI! Kidding.
Good luck.
Posted on 9/15/21 at 5:07 pm to SDVTiger
quote:
You will refi within 5-7yrs anyways
Why would you refi in 5-7 years at historically low interest rates?
That would suggest the market is dead and OP is likely closer to it (financially), too.
Posted on 9/15/21 at 5:14 pm to WITNESS23
quote:
But trying to time the market usually doesn't pay off well.
How is this decision (ie, not pulling out of the market to put 20% down on home) different than "time the market"?
Locking in a presumably 20-30 year liability while timing the market without a locked in rate of return
It might be time to find and hug an actuary. Kidding
Posted on 9/15/21 at 5:24 pm to Yeti_Chaser
350k sounds steep for a house unless you got like 4 kids
Posted on 9/15/21 at 8:50 pm to Turf Taint
quote:
Who is guaranteeing you 11%,
I'm weighing the guaranteed 6.19% saved by not paying PMI vs ~11% by staying invested which obviously isn't guaranteed.
It's certainly more than I want to pay for a house but the area I'm in is very expensive and I can swing it without making any changes to my current spending habits. I'm not thrilled about it and am certainly going to look to go cheaper but this thread isnt about determining my budget. I'm trying to weigh the difference in low vs high down payment
This post was edited on 9/15/21 at 8:52 pm
Posted on 9/15/21 at 8:50 pm to Turf Taint
quote:
Why would you refi in 5-7 years at historically low interest rates?
Because your life changes every 5-7yrs and 97% of the borrowing public either sell or refi within that time frame
Posted on 9/15/21 at 9:25 pm to SDVTiger
quote:
Because your life changes every 5-7yrs and 97% of the borrowing public either sell or refi within that time frame
Is this a real fact or a yank from duodenum fact?
Hear the life change but don't hear the refi in 5-7 years, as they are at historically low rates now. If they are lower then, we are all in trouble.
Posted on 9/15/21 at 10:06 pm to Turf Taint
Just here to say taint is on a roll. Haha
Posted on 9/15/21 at 10:21 pm to Yeti_Chaser
A different perspective, why not move to a high dividend strategy temporarily. Typically going to perform better in a market crash scenario anyway, but you could use the dividends to further accelerate paying down your mortgage.
If my drunk math is close, you could stop adding to the investments and use cash flow, in addition to the dividends, and get the PMI knocked out in a couple years.
Just thinking out loud, but it’s kind of a split the difference approach. You keep the current investable assets and make money if everything remains awesome, and you play a little defense while you aggressively knock out PMI in case it doesn’t.
If my drunk math is close, you could stop adding to the investments and use cash flow, in addition to the dividends, and get the PMI knocked out in a couple years.
Just thinking out loud, but it’s kind of a split the difference approach. You keep the current investable assets and make money if everything remains awesome, and you play a little defense while you aggressively knock out PMI in case it doesn’t.
Posted on 9/15/21 at 10:53 pm to Yeti_Chaser
quote:Is the PMI being paid all up front? If not, then why would PMI be subject to interest? I thought interest is only calculated on the principal balance. Escrow stuff is paid in advance by the borrower, so it shouldn’t be charged interest
PMI is $134 per month. $134 x 12 is $1,608 per year, which is 3.2% of the other $50k I need to meet a 20% down payment. 3.2% + the 2.99% interest rate is 6.19%.
Posted on 9/15/21 at 10:53 pm to Yeti_Chaser
DP
This post was edited on 9/15/21 at 10:55 pm
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