Requesting creative solutions - PMI

[PennyPincher]

I am one of the unfortunate souls paying private mortgage insurane on my home. It is in the insane amount of $173/MONTH! It makes me sick. I know more than I did when I first purchased a home...of course. I wish I had done an 80-20 loan to avoid it, but I didn't.

Anyhow, I owe about another $29,000 to pay off the 20% required to remove PMI. Although I have this money in ING, I don't want to use it. However, I would think that will be helpful if I try to get a loan.

What kind of loan can I get for $29,000 to get rid of my PMI? Are there other options other than home equity loans? (I have a rental property that I could probably borrow against.)

I'm glad I bought, but I'm paying over $2,000 toward this every year because I didn't have enough cash to put down! (Who has $50,000 to put down?!?!?! - well, I guess some do. I didn't.)

Other info: my home (townhouse) is 17 months old.

Please advise ~ I'd greatly appreciate the input of others out there.

[Keen]

What it the house worth? (I am guessing you bought it for 250k based on your comment "Who has $50,000 to put down?!?!?!")

Or more to the point I guess I should ask how much are townhomes going up in value per year in your area? That growth in value since your purchase should count against your 20% requirment and in some areas that would get you to the level you need very quickly...you just have to pay for another apprasial.

If you have the money put down what is need to bring you to the 20% level...Any 80/20 loan (or other type of loan) on $29k you get is going to cost you more than you are earning on the ING account.

And I would rather be saving the $173 a month rather than throwing it away on worthless PMI, which is of no value to you.

Anyway with the growth in value on your home over the last year and a half maybe you wont need the entire 29k.

[Ima saver]

Well, ING is paying you $1102 a year in interest. You are paying $2076 a year for PMI. I guess I would withdraw the $29,000 to pay down the loan. I don't know your rate, but figure out how much that will save you in interest per month add that to the $173 a month and deposit that back into your ING account every month.

[34saving]

Check your paperwork. We couldn't get out of PMI for 2 years even though we were way over 20% after one year (and they promised us we could get rid of it as soon as we hit 20% -- grrr). Also, Keen's right. Any growth in the market will count as money in your favor.

[Keen]

Also for anyone out there thinking about getting a new 80/20...the 20% part of those loans are often at HIGH rates and it is worth it to run all the numbers before doing one vs. just paying PMI.

Don't get me wrong PMI is the pits but a bad 80/20 might not save you $ in the long run.

The real solution is to put 20% cash down if at all possible...not an easy task in many parts of the country these days but a noble goal none the less.

[PennyPincher]

The townhouse was $247,000.
Similar units are currently selling between $280,000-$300,000 (but the market is softening.)

I owe $227,000.

Since I've only had the loan about a year and a half, I can't request an appraisal yet. My lender requires that the loan is 2 years old.

So....I could wait until September and hope that it will get appraised at a number high enough to remove my PMI. I will likely pay upwards of $350 for the appraisal, and $173/month until then in PMI - which totals $1,561. (none of which is deductible.) I don't know how to decide if this is a better option, or getting a loan to pay down the 20%. Ugh.

[Keen]

If you put down the cash can you have them remove the PMI right now? Will you still need an appraisal?

[PennyPincher]

If I pay the balance of the 20%, no appraisal is needed. But I lose the availability of my funds for other uses.

Maybe waiting is the right thing. Even though I'll put out some more money in PMI and an appraisal, I won't be tying up a huge chunk of money - and will still benefit with PMI removal.

I have no idea what loan rates I could get for $30K, but it may make my monthly payment HIGHER than what it is now.

Why does this have to be so confusing?!?!

THANK YOU everyone for your valued input!

[Keen]

I can only tell you what I would do in your place....

I would take the $29k if I had it available and put it on the mortgage, then PMI would be gone forever.

That way at least $1500 would be saved over the next 7 months not to mention the interest reduction that one time pmt of $29k would get me over the life of the mortgage. (I would run those numbers on the interest savings and that might convince you its the right thing in the long run)

In the end I would owe just under $200k on a townhome that should appraise at $300 in the near future....Not bad at all

Thats 100k of equity there for the taking if I ever need it...No PMI to worry about.

The real question is if you owed $198k today on your house would you take out $29k to put into a ING account? I sure would not, especially if it was going to cost me an extra $173.00 a month down the drain. By not paying down (up?) to the 20% level that is in effect what you are doing.

Honestly, it does not seem that confusing to me at all, but then again its not my Money.

Good Luck!

[PennyPincher]

I just called my mortgage company...and asked if I pay down the 20% balance, how much MORE of my monthly payment will go toward principal (vs. interest.) The answer was over $115!!!

So...I am transferring the money out of ING to pay down. I'll save $173/month in PMI and get more toward my actual loan than interest. Seems like a good idea ~

If anyone has a different thought, let me know!!! THANKS.

[sweeps]

I think that's a good move, PP. Don't forget that your ING interest is taxable so you're not even giving up a full 4.75% (or 3.8%) anyway. Just as long as you still have an emergency fund cushion...

Did you get official (written) confirmation from your mortgage company that they will cancel the PMI if you pay $X? The last thing you want is to withdraw all that money, apply it to your mortgage and then they tell you that you're still not eligible to get PMI removed.

[Keen]

Good call PP!

You can also think about it this way-
...on a $230k 30yr Mortgage @ 6% by making a one time pmt to principal of $29k during the 17th month of the note would save you close to $100k in interest by the end of the term (and therefore it would pay off around 6.5 years early)

Now you may sell that townhome and move long before that, but either way I think it is a sound move with only upside.

As long as you still have a little cushion left in for an Emergency fund as Sweeps states.

This is not even factoring in the issue of the PMI...that is just the icing!

[Keen]

Here is a good Kiplingers article on PMI and getting it dropped.

Note the Gov rule states that lenders must remove it only when you reach a 22% level in relation to your purchase price...not counting the growth in property value in your equity.

A good quick read...

http://www.kiplinger.com/personalfin...2001/q0115.htm

[Ima saver]

Very good advice Keen. I am glad that pp is going to do this!!

[flash]

Good advice. The one caveat I would add is to make sure you check your burn rate and ensure you have enough liquid cash for whatever may be coming down the pipe (i.e., budget). Once you pull the money and put it into the mortgage, it's not accessible unless you take out another loan.

I agree on dumping PMI ASAP. We got caught in a similar situation, and it was much harder to get the PMI off than we expected.

[PennyPincher]

Just a THANK YOU to all of you that provided advice on having my PMI removed. Discussing this stuff with others is so beneficial -

I wrote the check for $29,483.43 to pay the remainder of the 20% balance. (Ouch.) BUT...I feel wonderful! What a lifted weight. I don't have as much in ING now, but I have huge peace of mind. And it's not as if I won't get the money out at some point. My mortgage company, BB&T, has already sent me a letter and deleted the PMI. My monthly payment went down $173.90, and now about 33% more will go to principal each month than did before. And now I owe $197,128 on a home that could rather easily sell for $285,000... a much better position.

I also requested deletion of my escrow account so I can pay my City taxes directly, and not give up any interest to my lender.

YEE-HAW!!! THANK YOU!!

[Ima saver]

congratulations!!!!