Prepay PMI and save?

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Putting together a conventional 30 year loan on a home. I bought up the idea of prepaying my PMI--lender said they would have to look into it. Came back with 2.05% of the purchase price upfront to get rid of PMI each month, same loan rate of 3.875%. A Prior estimate had the yearly PMI at .73%, split out in 12 monthly payments. This seems like a No brainier to me for the following reasons:

If I don't prepay the only way to get rid of PMI is to pay down the principle to 78-80% LTV or refinance. It would take 120 payments of the monthly minimum to get down to 80% LTV; and 120 PMI payments as well.

Couldn't find much on it...it seems to good to be true. Paying the upfront 2% can save years and years of .73% PMI. This was for a 5% down loan. This seems like a great way to put a little extra down and knock out PMI.

Thoughts? has anyone else done this here, is there a pitfall? Or some kind of catch? I realize I would have to stay in the home just about 3 years to break even on the PMI, but rates are low right now and a refi in that period of time is so unlikely.

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in hindsight, I wish I had done the upfront PMI or explored my options of doing an 80/10/10 at time of purchase. In your case with 5% down and 2% up front for PMI, you're only 3% away from doing the 80/10/10 option.

I'm now doing a refi into an 80/10/10 and it would have been one less step to just do it at purchase time

How about buy less house and put down 20%? That's better in my book.

Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.

There are few investments better than attacking PMI at the margin.

svr411 said:   Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.

There are few investments better than attacking PMI at the margin.


I agree, and do plan to accelerate payment no matter which direction I go. But I've only got oh so much money each month to attack the principal. At normal payments I'm calculating 10 years of PMI. At accelerated rates that I could comfortably afford... I'm looking at 7-8 years possibly.

svr411 said:   Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.

There are few investments better than attacking PMI at the margin.


Unless you will come up with 17% equity, refi, or move within 3 years, the up front PMI option is the clear winner in every calculation that I've run. When combining my mortgage interest and PMI on my house, it's almost a 10% rate I'm paying, with no way to reduce the (non-tax-advantaged) PMI without reducing my deductible mortgage interest.

$300k house. 5%/$15k down. PMI ~$2100/yr, or upfront option of $6k

To remove PMI by following your advice of "accelerating the cancellation" you would need to pay down $51k of the mortgage.

I'd personally rather put that $51k towards graduate student loans at 6.8% (non-deductible)

svr411 said:   Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.

There are few investments better than attacking PMI at the margin.


if it's FHA don't you ahve to be at both 78%LTV and also have been paying on the loan for 5 years?
I thought both had to be true to satisfy the PMI and get rid of it.

Thanks for this thread. Going to prepay my PMI when I buy my first (multi-family) home with 3.5% down

MADWAD said:   Thanks for this thread. Going to prepay my PMI when I buy my first (multi-family) home with 3.5% down

Sorry 3.5% down is for an FHA loan. FHA doesn't have an UPFront PMI Policy only option. FHA charges 1.75% upfront and 1.25% annually for a minimum of 5 years and until you pay the loan balance down below 78%.

The UPFront Only Option is for Conventional Loans at 95% or Less LTV's

svr411 said:   Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.

There are few investments better than attacking PMI at the margin.


This is inaccurate assumption. On a Conventional Loan with PMI the rules are not just pay down below 80% and it automatically expires.

The rules are as follows:

1) Pay the original amortization schedule to 78% of the original loan balance.
2) Pay the loan for at least 2 years with good payments, request a cancellation, get an appraisal proving that the balance is 80% or less.
3) The lender does not have to cancel the PMI on the loan if you have been more than 30 days late in the last 2 years.

Stubtify said:   Putting together a conventional 30 year loan on a home. I bought up the idea of prepaying my PMI--lender said they would have to look into it. Came back with 2.05% of the purchase price upfront to get rid of PMI each month, same loan rate of 3.875%. A Prior estimate had the yearly PMI at .73%, split out in 12 monthly payments. This seems like a No brainier to me for the following reasons:

If I don't prepay the only way to get rid of PMI is to pay down the principle to 78-80% LTV or refinance. It would take 120 payments of the monthly minimum to get down to 80% LTV; and 120 PMI payments as well.

Couldn't find much on it...it seems to good to be true. Paying the upfront 2% can save years and years of .73% PMI. This was for a 5% down loan. This seems like a great way to put a little extra down and knock out PMI.

Thoughts? has anyone else done this here, is there a pitfall? Or some kind of catch? I realize I would have to stay in the home just about 3 years to break even on the PMI, but rates are low right now and a refi in that period of time is so unlikely.


The only reason that I tell my clients to take the Monthly PMI option, over the "Up Front PMI", is if they think that they will sell the house in less than 3 years or the house will appraise to push the loan balance below 80% after 2 years of good mortgage payments.

You might want to ask you lender to shop their PMI around. I will tell you that my preferred PMI provider sells UPFront PMI policies for 95% LTV over 740 ficos depending on the deal around 1.50-1.85%. I have sold it as cheap on a specific deal for 1.35%. My provider prices based on the specific deal and pricing varies. This is a great product and most Loan Officers are idiots and know absolutely nothing about it. But ask for "Up Front PMI" and they should be able to get a quote. I also sell alot of Lender Paid PMI policies included in the rate if the client doesn't want to spend the money upfront or pay the higher payment with the Monthly MI. The rate is generally about .25-.375% higher with no Monthly Mortgage Insurance and it also has no Upfront Costs for the policy.

Colt2001 said:   MADWAD said:   Thanks for this thread. Going to prepay my PMI when I buy my first (multi-family) home with 3.5% down

Sorry 3.5% down is for an FHA loan. FHA doesn't have an UPFront PMI Policy only option. FHA charges 1.75% upfront and 1.25% annually for a minimum of 5 years and until you pay the loan balance down below 78%.

The UPFront Only Option is for Conventional Loans at 95% or Less LTV's


Oh thank you!

I was actually unaware you could get a conventional loan for 5% down. This is what I will do instead.

Colt2001 said:   This is inaccurate assumption. On a Conventional Loan with PMI the rules are not just pay down below 80% and it automatically expires.

The rules are as follows:

1) Pay the original amortization schedule to 78% of the original loan balance.
2) Pay the loan for at least 2 years with good payments, request a cancellation, get an appraisal proving that the balance is 80% or less.
3) The lender does not have to cancel the PMI on the loan if you have been more than 30 days late in the last 2 years.


I'm aware of the rules. Nothing was inaccurate and nothing was an assumption.

All I said was that PMI is costly per dollar at the margin and going with the monthly option gives him the flexibility to get an excellent risk-free, tax-free rate of return, assuming he hasn't borrowed so much he can't pay it down ahead of schedule.

Monthly would also give him the flexibility to wait out the two and hope fore substantial appreciation, though I doubt that this market + HVCC would let him get away with that.

svr411 said:   Don't prepay your PMI.

Pay extra towards your mortgage each month to accelerate the cancellation.
There are few investments better than attacking PMI at the margin.


This line is inaccurate or misleading at best. As I mentioned you can not just pay down your mortgage to 80% of the original deal and the MI will expire. That is not how Conventional MI expires. If you paid it down to 80% of the original balance you would have to get an appraisal that substantiated it. Otherwise you have to follow the original amortization schedule regardless if the borrower pays additional principal to accelerate the amortization schedule.

This is why it just doesn't make sense to pay 70 bps a year when more than likely it wont get cancelled early when you can only pay 150-185 bps upfront. Which is less than 3 years of Monthly MI payments.

Stubtify said:   Putting together a conventional 30 year loan on a home. I bought up the idea of prepaying my PMI--lender said they would have to look into it. Came back with 2.05% of the purchase price upfront to get rid of PMI each month, same loan rate of 3.875%. A Prior estimate had the yearly PMI at .73%, split out in 12 monthly payments. This seems like a No brainier to me for the following reasons:

If I don't prepay the only way to get rid of PMI is to pay down the principle to 78-80% LTV or refinance. It would take 120 payments of the monthly minimum to get down to 80% LTV; and 120 PMI payments as well.

Couldn't find much on it...it seems to good to be true. Paying the upfront 2% can save years and years of .73% PMI. This was for a 5% down loan. This seems like a great way to put a little extra down and knock out PMI.

Thoughts? has anyone else done this here, is there a pitfall? Or some kind of catch? I realize I would have to stay in the home just about 3 years to break even on the PMI, but rates are low right now and a refi in that period of time is so unlikely.



It is exactly what I did and I am VERY happy I did so! When my mortgage broker suggested this, I checked with other financing companies and most would not offer it to me.

juliox said:   in hindsight, I wish I had done the upfront PMI or explored my options of doing an 80/10/10 at time of purchase. In your case with 5% down and 2% up front for PMI, you're only 3% away from doing the 80/10/10 option.

I'm now doing a refi into an 80/10/10 and it would have been one less step to just do it at purchase time



is this option of 80/10/10 still available



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