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Paying Down Mortgage to Eliminate PMI

Can I pay down my mortgage to eliminate the pmi? I think I heard or read somewhere that you have to pay for five years regardless of LTV.
  • February 23 2012 - Dallas
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Answers (7)

Best Answer

That 5 year rule only applies to FHA loans.   If you are paying down the balance to 80% of the value, you may also consider refinancing into a new loan and avoid it all together.
  • February 23 2012
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I saw two good points and answers that I want to expand.

like David Hagy's point about the cost to you caused by the lost opportunity for growth of your money you will spend to buy down your loan balance as Clay Branch best answers by refinancing with a conventional loan.

Your need to consider more than just saving from paying PMI or MIP (that may be tax deductible for you) depending on what is your present loan type (Conventional or FHA).

Consider this for example:

If you pay 4% interest rate for your loan, and you get a Federal and State income-tax deduction of the interest, if your total tax rate is 25%, then your net cost of your loan would be 3%. You have options today to earn a guaranteed 6% to 7.25% annually in a tax-deferred annuity to create a guaranteed future income. Therefore, the cost of your loan is half your return on investment.

Depending on the sum of your overall cash reserves and liquid investments, you may qualify to put your funds into a guaranteed insurance contract called an annuity. These annuities have income riders. Several companies provide respective guarantees of either 6% lifetime annual return or 7.25% compounding annual return for ten years. The income account will grow until you decide to take income from the fund. You will be able to receive a 4% to 8% annual pay-out for the rest of your life depending on your age when you decide to take income.

Talk with your tax-advisor, mortgage loan originator and a financial advisor who can help you make the right choices. Good luck!
  • February 26 2012
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Forced to pay 5yrs, after that it will drop automatically when you hit 78% LTV.

It normally takes 11yrs from purchase with smallest down payment to eliminate it by making regular minimal scheduled payments.

There are some Conventional options by which you could refinance and bring cash to closing BUT you would possibly create another issue with the current value of the home if it has declined.

Chances are, you are paying the lower .5% annual MIP which is not too bad monthly as compared to todays MIP factor of 1.1% for new FHA borrowers <95LTV.

IF YOU INTEND TO STAY IN THE HOUSE 15-30YRS.....
You need an analysis done to see what financial benefits you have to obtain with todays lower rates and which type of loan is most beneficial based on your current value of the home.

YOU SHOULD ALSO ANSWER THE QUESTION OF.....
How much my VALUE can I get out of my cash on hand, instead of investing in towards my balance vs the befits of eliminating 2-3yrs of low MIP premiums?

  • February 26 2012
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" If you pay 20% down on a 15-year loan, you won't be required to pay the MIP."

That's close, it takes 22% down to not have the annual MI charged on a 15 Yr but there is still a 1% UFMIP fee.

You could always just go conventional on a 15 YR with 20% down and no UFMIP.
  • February 23 2012
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Is this an FHA loan?

FHA requires PMI until you are at or below 78% LTV or for 5yrs..... Whichever is longer.

Conventional would just want an appraisal to support the LTV after you pay it down.

  • February 23 2012
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. There are some exceptions to the mandated FHA mortgage insurance premium. If you have a loan term of 15 years or less AND put down 10% or more, the MIP will be canceled when the loan balance is 78% of the original appraised value or original sales price, whichever is less. If you pay 20% down on a 15-year loan, you won't be required to pay the MIP.
  • February 23 2012
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contact present lender  and ask for their options
  • February 23 2012
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