Originally I was planning on paying off PMI when I purchase my home, but after some calculations I've reconsidered.





For the table values, B3 is calculated: "=B1-B2"
B4 is calculated: "=B3*(1.1^30)"
B5 is calculated: "=PMT(0.055/12,360,157000-B2)*360"
B6 is calculated: "=-0.015*(150000-B2)*30" (Actually it is 0 since PMI doesn't apply, but for the other ones it does)
B7 is calculated: "=SUM(B4:B6)"

Each of those values are calculated differently for each respective column. The only thing that changes is what I have control over, the down payment.

The least amount I can get is a 150k loan with 10% down according to my loan officer. According to the chart the less I put down the better my return. PMI wouldn't even last 30 years, so it is more pessimistic than it needs to be, but from what it looks like, paying off my PMI is actually a mistake.

Did I mess up somewhere or is this correct?

Edit:
If I lower my annual return to 5% it becomes better to pay off my PMI, but it is better at 6%.

Am I over complicating this? Is the only thing I need to do, this?:
ROI of investments > Interest Rate + PMI then don't pay off PMI
ROI of investments < Interest Rate + PMI then pay off PMI
ROI of investments < Interest Rate then pay off as much as possible

Paying your mortgage is rarely worth it, usually you want to use the available equity for other investments. Of course this depends, but your OP makes sense.

It's a mental burden for some people, is also very easy and has zero risks, so they pay it off, but it isn't worth it. Especially if you are smart and have a few tenants/roomates, then you can deduct part of your interest, expenses and repairs.

In your specific example, yes, it makes far more sense to avoid paying $1800 a year in PMI.

Your numbers don't make sense though. PMI seems far too high and if you're gonna do this analysis, you need to know how long the PMI payments last and you also need to consider what you could do with the money saved on PMI payments.

I believe that it is indeed that simple.

Probably better to do ROI comparisons for PMI and interest separately though since the PMI as a rate is likely different.

And yeah, 10% for a return assumption is aggressive if you are investing in public equities.

I dont know much about PMI, but is there a way you can buy the house without it?


Sent from my iPhone using Tapatalk

you just put 20% down or sth. when you pay a mortgage, once the principal is roughly 80% of the value of the house it's no longer needed and you take it off

i'm excel illiterate. what's the interest on the loan?

also lol @ 10% return. don't assume that. isn't risk free rate basically 4% and average return on equities ~7%?

it really depends on the interest rate of the loan and if having debt affects you psychologically. if it doesn't bother you, then by all means nit it up on the numbers. you want to pay the least down in that case and PMI may or may not matter but that's simply a function of the numbers

if it does bother you psychologically then pay the max down and don't quibble over numbers. peace of mind has value and it's not some travesty that you sacrifice potential return in a vacuum. sometimes the optimal decision can't be crunched by numbers

Keep in mind that you can usually deduct PMI from taxes. I think there is either an income limit or limit on amount you can deduct. Try google.

10% return is LOL.

You are way overestimating pmi. I just bought a house with 5 percent down and borrowed $230,000. We pay like $80 a month for pmi for 10 years.

This isn't the case for personal loans. I believe it needs to be a business expense to deduct or something.

Yes, it is.

Looks like it still needs to be renewed for this year:

"Can I deduct private mortgage insurance (PMI or MIP)?
Note: For tax year 2018, the PMI deduction is currently unavailable. At this time we don't know when, or if, Congress will approve this deduction for tax year 2018. If the deduction is approved after your file your 2018 return, you can file an amendment to claim the deduction. Alternatively, you can postpone filing your return until Congress definitively approves or denies the deduction for 2018.

The following info pertains to tax year 2017 and is provided for reference only.

Yes, if you itemize and the insurance contract was issued after 2006.

However, once your adjusted gross income (AGI) exceeds $100,000 ($50,000 for married filing separately) the deduction is reduced.

The mortgage insurance deduction is eliminated once your AGI surpasses $109,000 ($54,500 if married filing separately)."

https://ttlc.intuit.com/questions/19...nce-pmi-or-mip

I think the rule is different for a rental property though.