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Looking to cancel PMI, check my math please!

Home Mortgages and Home Buying Looking to cancel PMI, check my math please!

  • Avatar dataentryspecialist 
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    Status: Physician
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    Joined: 08/01/2019

    Long time follower of the blog, forum, and now new EM attending.  Thanks for taking the time to read this thread. I’ll try to keep it succinct.

    Bought house for 240K in 2015. 5% Down. PMI payment $1200/yr. 30 year loan. Owe 214k.  Interest rate 3.7%.  Lets be conservative (and realistic in my market) and assume no to minimal appreciation

    Question:  Is paying down enough principal to cancel PMI a poor investment?

    78% of 240k is 187k, so I would propose making a principal payment of 27K, which would cancel PMI.

    at 3.7%, plus cancellation of PMI at $1200/yr, with a 27K principal payment I’d be looking at saving about $2200 per year, or an 8.1% annualized return, on that $27K payment.

    Am I totally off base here?  For what it’s worth, we have paid off student loans. Only debt is this silly house (don’t buy a house as a resident!) and 20K on her car at 1.9%. Net income including spouse (after taxes, health insurance for both of us, and her (crappy employed 401k) and mine (solo 401k maxed) contributions) is about 20K/month.

    As a new attending, this would be a relatively large cash outlay, hence the debate and wanting to make sure I’m assuming correctly.

    Again, thank you, and I hope someone will be so kind as help guide me to the right decision.

     

     

     

    #235459 Reply
    CordMcNally CordMcNally 
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    Status: Physician
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    Joined: 01/03/2017

    Were you not eligible for a physician loan as a resident? Also, can you refinance into a physician loan with no PMI at this point? I have no experience with trying to refinance into a physician loan so I’m not sure what’s possible or not.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #235512 Reply
    Avatar DCdoc 
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    Status: Physician
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    Joined: 06/14/2016

    You can get to 20% in 2-3 months at your salary. Seems like a good investment to me. You’ve done the math. It’s a cheap house. Make a big principle payment and quit paying PMI.

    #235547 Reply
    White.Beard.Doc White.Beard.Doc 
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    Status: Physician
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    Joined: 02/06/2016

    Make sure your lender is on board with letting you out of the PMI payment.  It is not automatic and they may require you to jump through some hoops.  This varies by lender.  Some require a new appraisal, there could be delays, and lenders have sometimes claimed a drop in market value depending on your local market circumstances.

    Have you contacted your lender to ask them about their process, and whether or not they will require a new appraisal?  Once there is sufficient proof that you have >22% equity, your lender is required to remove the PMI charges.

    #235552 Reply
    wideopenspaces wideopenspaces 
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    Status: Physician
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    Joined: 01/12/2016

    I don’t know about your area but we were able to get out of PMI within a year or two just based on appreciation alone. Get an appraisal, you probably won’t even need to make any extra payments. . . Or will at least need less than 27k to get rid of it.

    #235602 Reply
    Avatar jz 
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    Status: Physician
    Posts: 680
    Joined: 01/09/2016

    Your proposal would yield a first year $1200 on $27,000 of principal.    $1200/27,000=4.4%.  Each successive year would yield slightly less.  Yes, I would do that deal.

    #235615 Reply
    White.Beard.Doc White.Beard.Doc 
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    Your proposal would yield a first year $1200 on $27,000 of principal.    $1200/27,000=4.4%.  Each successive year would yield slightly less.  Yes, I would do that deal.

    Click to expand…

    $1200 is just the PMI savings.  The OP will also be saving an additional 3.7% (their mortgage interest rate).  So each month there will be extra money going to principal rather than interest, leading to earlier mortgage payoff.

    Added together, OP will be saving roughly 8% on the additional principal payment.  That is an excellent ROI.

    #235649 Reply
    Avatar adventure 
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    Status: Spouse
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    Joined: 10/24/2016

    I’d see if you could refinance for less than 3.7%. And get out of PMI.

    That is an excellent ROI.

    Click to expand…

     

    #235659 Reply
    Avatar AZPT 
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    Status: Other Professional
    Posts: 125
    Joined: 02/02/2019

    I’d see if you could refinance for less than 3.7%. And get out of PMI.

    That is an excellent ROI. 

    Click to expand…

     

    Click to expand…

    This was my thought (I am in a similar situation as OP), but what about closing costs for the refi? Just view it was cheaper than the $27k principle payment so a win w/o the large chunk? Feels like I am missing something.

    #236941 Reply
    Avatar Budgetmaestra 
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    Status: Attorney
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    Joined: 04/30/2019

    I’d do it. The numbers make sense to me.

    #237031 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
    Posts: 4610
    Joined: 05/13/2011

    Long time follower of the blog, forum, and now new EM attending.  Thanks for taking the time to read this thread. I’ll try to keep it succinct.

    Bought house for 240K in 2015. 5% Down. PMI payment $1200/yr. 30 year loan. Owe 214k.  Interest rate 3.7%.  Lets be conservative (and realistic in my market) and assume no to minimal appreciation

    Question:  Is paying down enough principal to cancel PMI a poor investment?

    78% of 240k is 187k, so I would propose making a principal payment of 27K, which would cancel PMI.

    at 3.7%, plus cancellation of PMI at $1200/yr, with a 27K principal payment I’d be looking at saving about $2200 per year, or an 8.1% annualized return, on that $27K payment.

    Am I totally off base here?  For what it’s worth, we have paid off student loans. Only debt is this silly house (don’t buy a house as a resident!) and 20K on her car at 1.9%. Net income including spouse (after taxes, health insurance for both of us, and her (crappy employed 401k) and mine (solo 401k maxed) contributions) is about 20K/month.

    As a new attending, this would be a relatively large cash outlay, hence the debate and wanting to make sure I’m assuming correctly.

    Again, thank you, and I hope someone will be so kind as help guide me to the right decision.

     

     

     

    Click to expand…

    Bizarre that you have it, but yes, getting rid of it is usually a good investment.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #237071 Reply
    Avatar dataentryspecialist 
    Participant
    Status: Physician
    Posts: 5
    Joined: 08/01/2019

    Was told at the time by a good “realtor friend” who was my “buyer’s agent” that I could save .5%/yr on the 30 year mortgage by not doing the doctor loan, and instead using my higher earning spouse’s credit as the basis for a low down payment loan.  I never actually checked around to see if that was true, I just checked it against similar loans, found the terms to be generally OK, and signed all ~200 pages I got from whatever mortgage company he recommended, which I now see was probably akin to a self referral. That on top of the insane ~5% fee they take to facilitate a home sale.

    #237771 Reply
    Avatar adventure 
    Participant
    Status: Spouse
    Posts: 1207
    Joined: 10/24/2016

    I’d see if you could refinance for less than 3.7%. And get out of PMI.

    That is an excellent ROI. 

    Click to expand…

     

    Click to expand…

    This was my thought (I am in a similar situation as OP), but what about closing costs for the refi? Just view it was cheaper than the $27k principle payment so a win w/o the large chunk? Feels like I am missing something.

    Click to expand…

    You’d have the do the math, but the refi has several Pros: lower payment, lower interest, no PMI, no 27k outlay, and the con of a refi pay cost. Given the low rates now, seems like a refi might be a better deal.

    … and (as 1 example) consider a 15y fixed, instead of a 30y – you might be close to having the same payment now (which has PMI) and end up with a 15y mortgage, not a 30!

    #238022 Reply
    Liked by AZPT
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3341
    Joined: 09/18/2018

    Getting rid of PMI is the goal.
    • Check your current lender
    • Check doctor’s loan refi
    • Check standard loan

    $214 or $187 you have $27 to play with for closing costs and/or principal. Stay with fixed and get options on 15/20/30 year terms.

    Do not try to forecast long term interest rates, it’s just rising interest rates have been forecasted for 10 years. The PMI is your target and it’s favorable now. The appraisal and closing costs will vary, but you need to get the preliminary offers before you decide which is best for you.

    Get rid of the PMI, mission accomplished.

    #238037 Reply

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