I got an appraisal and my house has appreciated in value by $100k so I'm closer than ever to remove pmi.
6.5% mortgage.
$200 pmi monthly payment.
Ltv right now is 80% but lender wants 75% to remove pmi.
I was going to sell some stocks for tax loss harvest anyway and then byback. But I wonder if I should dump 55k into the loan and remove pmi. I calculated that this would net me about 10.8% yearly yield ( 6.5% mortgage + 4.3% pmi ratio to 55k). This seems reasonable but I wanted to get people's opinion on this.
Pay $55k to remove pmi? 6.5% apr
byu/DeepBlueBirds inpersonalfinance
Posted by DeepBlueBirds
10 Comments
I would. Your calculation makes sense. And that is exactly how I would think about it. I was just looking at the 4.3% return on the $200/mo.
I’ll get downvoted but at 6.5% I would dump pretty much *everything* that isn’t an emergency fund on the mortgage. Guaranteed return.
So yes, I would definitely do this to release PMI.
Maybe you have misunderstood the lender and they require that 75% of the loan remained. You have to check your loan agreement, which should outline PMI removal. Also, some loans require 24 months of payments before PMI is removed.
This is a strong move. That 10.8% is effectively a guaranteed, tax-free return on your capital, which is rare to find in any investment. Consider it a high-yield, risk-free bond. Plus, the psychological benefit of eliminating PMI is significant.
this is less like throwing 55k at a vacation or new car and more like shifting 55k from one investment vehicle to another.
Your calculations sound ballpark correct — at 6.5%, paying down mortgage principal starts looking pretty competitive against investing in a market with mediocre outlooks.
I think your plans for the long term disposition of the house may affect this calculation a little bit. If you’re likely to want to sell it and move before your LTV hits 75% organically, there’s an argument to be made for keeping finances liquid to maximize flexibility. If you’re planning to live in this particular home till you can’t any more, that’s a strong argument for paying down the principal faster.
Basically the more of a rush you might ever have to sell the house in, the more risky it is to have a lot of your net worth tied up in home equity. If you might have to sell in a time frame of months, you run the highest risk of not getting back what you put in. But if you plan to sell never, or you have the flexibility to pick a good seller’s market on the timescale of years or decades if you do sell, it maximizes your chances of getting back everything you put toward the principal and then some.
You mentioned you want to refinance 2026. Why don’t you just wait until then? Your refinance will use the new value of the house at the LTV will be atomically below 75%. Then you can be strategic about where exactly you want to allocate your cash; whether it’s into the mortgage or elsewhere.
You could also check if the lender will allow just an appraisal and not a full refinance to remove PMI. I know it changes by lender but I have done this option twice on two separate mortgages.
Is it a conforming loan? Legally they must remove it at 78% ltv automatically and you can request it be removed at 80%
>I was going to sell some stocks for tax loss harvest anyway and then byback
Make sure you don’t incur the wash sale rule:
https://www.schwab.com/learn/story/primer-on-wash-sales
Basically if you sell a stock for a loss then buy it back too soon you don’t get to use the loss for a tax reduction
Probably, but consider:
1. Are you planning on selling within the next year or two? If so, removing PMI has less of a benefit.
2. Do you itemize deductions? If so, consider that you’ll lose some of that tax benefit, assuming your principal is below $750k.
Are you saying you’re paying a 4.3% pmi rate? If so I’d double check that because that sounds really high