PMI - Why So Much Hate? [Private Mortgage Insurance]

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dsmil
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PMI - Why So Much Hate? [Private Mortgage Insurance]

Post by dsmil » Mon Jul 24, 2017 9:06 am

PMI gets a ton of hate on this site. Is it the added cost or the process of getting it removed that gets on your nerves the most? A 3.75% mortgage with some PMI thrown on top for a few years still seems like a pretty good deal in the long term. I guess most people look at PMI itself as bad, which is true, but when combined with an attractive interest rate, it seems like a reasonable price to pay.

Just to throw some numbers out there, I see $400k mortgages at 3.75% with 10% down, and PMI is about $100 per month for 5 years. If the mortgage is still affordable with PMI, it doesn't seem like something to lose too much sleep over. The monthly payment for those first 5 years would be comparable to a 4.5% loan, and your are locked in at a very low 3.75%.
Last edited by dsmil on Mon Jul 24, 2017 9:46 am, edited 1 time in total.

eer_no_evil
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Re: PMI - Why So Much Hate?

Post by eer_no_evil » Mon Jul 24, 2017 9:08 am

its all "opportunity cost"...that adds up.

miamivice
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Re: PMI - Why So Much Hate?

Post by miamivice » Mon Jul 24, 2017 9:12 am

PMI is not value added to the person who makes the loan payment.

Chadnudj
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Re: PMI - Why So Much Hate?

Post by Chadnudj » Mon Jul 24, 2017 9:15 am

I agree -- while it's important to realize what interest you're paying with PMI, don't let the tail of PMI wag the dog, so to speak.

For instance, we have PMI on our condo -- we put 10% down on a $428k condo, and pay PMI of approximately $150 or so a month. Not great, obviously.

But, our PITI plus Condo Association fees are LESS than rent on any comparable property, and our income is (at least now) high enough that the mortgage interest deduction/property tax deductions are one of the few that we are eligible for, PLUS out property has appreciated considerably in the meantime (although not enough to make it clear that we should refinance/appraise it to see if we could lose the PMI)....meaning that we're probably better off paying that PMI because OVERALL our housing costs are less than if we continued to rent while saving up for a 20% down payment (and we have growing equity in the property vs. renting).

Of course, we're shooting to NOT have to do PMI and do 20% minimum down on our next home (which will be the permanent one we raise our family in/stay in for 20+ years, hopefully)....but PMI helped us here.

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BolderBoy
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Re: PMI - Why So Much Hate?

Post by BolderBoy » Mon Jul 24, 2017 9:18 am

dsmil wrote:PMI gets a ton of hate on this site. Is it the added cost or the process of getting it removed that gets on your nerves the most? A 3.75% mortgage with some PMI thrown on top for a few years still seems like a pretty good deal in the long term.
I expect that for the overwhelming majority of borrowers, PMI is nothing more than an additional profit center for the lender (or whoever is getting the "premium").
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Carefreeap
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Re: PMI - Why So Much Hate?

Post by Carefreeap » Mon Jul 24, 2017 9:27 am

BolderBoy wrote:
dsmil wrote:PMI gets a ton of hate on this site. Is it the added cost or the process of getting it removed that gets on your nerves the most? A 3.75% mortgage with some PMI thrown on top for a few years still seems like a pretty good deal in the long term.
I expect that for the overwhelming majority of borrowers, PMI is nothing more than an additional profit center for the lender (or whoever is getting the "premium").
It's an insurance policy to protect the investor...with most conventional loans that means FNMA or Freddie Mac aka government backed loans which you a tax payer want.

I think most people don't understand how the system works. If one doesn't understand it and one doesn't think one has a choice one tends to resent "the system".

BW1985
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Re: PMI - Why So Much Hate?

Post by BW1985 » Mon Jul 24, 2017 9:37 am

It's just an avoidable expense. You're paying to insure someone else's interests.
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Nate79
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Re: PMI - Why So Much Hate?

Post by Nate79 » Mon Jul 24, 2017 9:39 am

Its a cost that provides no return or value to the borrower except they had the ability to buy a house more expensive than they traditionally should be buying (20% down). For us it was a necessary evil that we got rid of asap. To me it is similar to buying a higher expense ratio mutual fund. You will still come out ahead in the end you just won't have as much money due to the costs. Costs matter - its money out of your pocket.

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JupiterJones
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Re: PMI - Why So Much Hate?

Post by JupiterJones » Mon Jul 24, 2017 9:44 am

On top of which, if you don't have 20% to put as down payment, IMHO you probably haven't saved enough yet and/or are buying too much house.

Viewed in that light, PMI is especially insulting. You're basically paying extra for the "privilege" of making a questionable financial move in the first place.
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retiredjg
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Re: PMI - Why So Much Hate?

Post by retiredjg » Mon Jul 24, 2017 10:12 am

In many circumstances, if you cannot or have not saved something near 20% for your downpayment, you can't afford a house. Or at least that house. I know not everyone agrees and I also know this puts a particularly onerous burden on people in HCOL areas.

Just where did PMI come from in the first place? Assuming that the origins of PMI are not a scam, PMI probably came into existence because people who put down less than 20% defaulted more often. They were higher risk customers and to offset that risk, they were required to buy insurance against the extra risk.

I just think the 10% down offers are not in most people's best interest. They are in the lender's interests. I have no real problem with the idea of having 17% or 18% to put down and paying PMI for a short period of time. Sometimes that is better than waiting the extra time to get a home.

The Wizard
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Re: PMI - Why So Much Hate?

Post by The Wizard » Mon Jul 24, 2017 10:25 am

JupiterJones wrote:On top of which, if you don't have 20% to put as down payment, IMHO you probably haven't saved enough yet and/or are buying too much house.

Viewed in that light, PMI is especially insulting. You're basically paying extra for the "privilege" of making a questionable financial move in the first place.
Maybe.
But take the example of a person/couple with more than adequate income. Are they better off buying NOW with 10% down + PMI?
Or are they better waiting X months until they have 20% to put down?
What if prices go up during those X months?
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new2bogle
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Re: PMI - Why So Much Hate?

Post by new2bogle » Mon Jul 24, 2017 10:33 am

I had PMI for over several years and didn't regret it - it got us into a the house we wanted in an upwards rising market (in 2006). For me, it was ~$70/month, which I thought was cheap and let me keep some money in the bank when we were younger. In general, I think one should not pay PMI, but individual choices need to be made for one's specific case.
Last edited by new2bogle on Mon Jul 24, 2017 10:34 am, edited 1 time in total.

avalpert
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Re: PMI - Why So Much Hate?

Post by avalpert » Mon Jul 24, 2017 10:33 am

The Wizard wrote:
JupiterJones wrote:On top of which, if you don't have 20% to put as down payment, IMHO you probably haven't saved enough yet and/or are buying too much house.

Viewed in that light, PMI is especially insulting. You're basically paying extra for the "privilege" of making a questionable financial move in the first place.
Maybe.
But take the example of a person/couple with more than adequate income. Are they better off buying NOW with 10% down + PMI?
Or are they better waiting X months until they have 20% to put down?
What if prices go up during those X months?
What if prices go down?

What if prices go up but by less than alternative investments they could have made with the 10% they had already saved?

What if the person/couple gets laid off and suddenly their future income is much lower than it was?

There are many post-hoc situations where they would clearly have been better off waiting to buy and you can create situations where they would clearly have been better off buying - the question of what is the 'right' amount to have to put down a house before you can consider it a safe purchase without knowing the post-hoc outcomes isn't as easy.

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Re: PMI - Why So Much Hate?

Post by Mel Lindauer » Mon Jul 24, 2017 10:39 am

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