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Have you heard about prepaying PMI?


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FHA makes you pay upfront PMI. 1.5% of the loan value. Then, you pay PMI mnthly, except that it is a smaller amount than it would be had you not made a lump sum payment upfront.

You have no choice if you go FHA. Had I had a choice, I would not have done it. Cash in hand is better than lower PMI payments later. Invest the cash and make the PMI payments with gaisn off of the investment. The only benefit would be if you are cash strapped, then you could probably roll it in to your closing and then use a seller's credit at closing to take care of it and make your monthly payment lower. So I'd do it only by necessity.

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Seems to me it's best to avoid the PMI alltogether securing the 20% another way, either through other loan or a 2nd.

The PMI I was quoted is roughly adding 1% to the loan rate of 7.25%.

If you got a 2nd mortgage to pay the down payment, the rate will be a lot higher, but we'd save anyway.

If the 80% loan is 7.25%, then the 20% loan can be as high as 11.25% (7.25 + 4), and still be cheaper than paying 7.25% + 1% PMI. (These numbers are for my example of a 7.25% loan and the ~0.95% PMI I was quoted.)

I'm not going into the simple algebra to explain this any further. Do lenders even offer 80/20s still? Seems all I hear about is 100% and 95% LTVs.

What the heck, I'll show you how to use your own numbers and give you a simple equation.

To figure out your PMI % rate, just ask. If you haven't asked, multiply your PMI by 12 months, then divide that by the total loan value. If you need a whole number to know what you are seeing, multiply that number by 100 to get a percentage.

190 x 12 / 240,000 x 100 = 0.95 PMI %.

Now to calculate how high your 2nd can be and still save you money over a PMI, just multiply the PMI% you figured by 4, and add that to your 80% loan rate. That'll give you a rate that you want to be lower that on your 2nd mortgage to save money over a PMI.

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