Private Mortgage Insurance

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Topic Author
Docdad
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Joined: Sat May 09, 2020 9:30 am

Private Mortgage Insurance

Post by Docdad »

My parents are moving out of their home into a new home in a different state to be close to their children. They are mid 80's and still independent.

They live on a strict budget ( and unfortunately don't have a lot of home equity) so that their nest egg will last.
They have purchased a home and Pulte , the home builder, encourages them to use their own mortgage arm incentivized by a $5000 credit on their closing costs. The loan is 30 year, 3.499%. The loan after he pays the 15% down payment will be about $302,000.

A couple questions:
1) My father wants to put a 15% down payment ($53,000) to preserve his nest egg and the PMI is only $28 a month ( I saw this on the contract). Typically I wouldn't agree with paying PMI, but this seems low and reasonable for my father's comfort to hold on to more money. Any thoughts on paying this low of PMI and whether it is reasonably sound for him to do the 15% down payment . ( ideally he would pay 20%, I understand).
2) Any opinions on whether the $5000 credit on closing costs and 3.499% loan rate is reasonable? I could go searching for him for other mortgage companies, but the $5000 credit does seem like a decent incentive. Any thoughts?
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cheese_breath
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Re: Private Mortgage Insurance

Post by cheese_breath »

So if my math is right... If he put 20% down, that would be approximately an additional $17,667 on the down payment. Instead, he wants to finance that $17,667 @ 3.499% plus an extra $28 per month.
The surest way to know the future is when it becomes the past.
fabdog
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Re: Private Mortgage Insurance

Post by fabdog »

So the extra money to get to 20% and avoid PMI is ~$17,667.

For the privilege of holding that and improving his cash reserve he'll pay $28/month, or $336 a year, ~1.9% plus paying the 3.499%

Of course as he pays down and gets more equity the price will rise

No clue if the $5K in credits is good or horrible. It depends on what's happening in the area. Builders will give credits to avoid a lower sales price and angering previous purchasers. 3.499% is not horrible... but there are likely better deals out there. I assume no credit if he doesn't use their in house financing?

Should be easy to get some quotes and work up a spreadsheet comparing rates and breakeven.

Mike
bmsuter
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Re: Private Mortgage Insurance

Post by bmsuter »

I'd go with the PMI as long as it disappears at 20%. In these uncertain times, it is nice to have additional cash on hand. If he changes his mind later, he can make an additional principal payment to get to 20% and eliminate the PMI.
delamer
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Re: Private Mortgage Insurance

Post by delamer »

Is a $300,000 mortgage for people on a strict budget in their mid-80’s a good idea?

Have they figured out what happens to the survivor’s income when the first spouse dies? It is likely that one Social Security benefit will disappear and there may be a reduction in any pension (if relevant).
Topic Author
Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

cheese_breath wrote: Tue May 19, 2020 10:55 am So if my math is right... If he put 20% down, that would be approximately an additional $17,667 on the down payment. Instead, he wants to finance that $17,667 @ 3.499% plus an extra $28 per month.
You are correct with your numbers.
Topic Author
Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

bmsuter wrote: Tue May 19, 2020 11:03 am I'd go with the PMI as long as it disappears at 20%. In these uncertain times, it is nice to have additional cash on hand. If he changes his mind later, he can make an additional principal payment to get to 20% and eliminate the PMI.
That's a good point. He can always pay it later. I was surprised PMI was only $28. They do lead a frugal life , other than the obvious not so good situation of having a $300,000 mortgage at their age. But they can afford the mortgage and have a reasonable lifestyle. I wish there was more cushion, but they do have long term care insurance.
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Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

delamer wrote: Tue May 19, 2020 11:19 am Is a $300,000 mortgage for people on a strict budget in their mid-80’s a good idea?

Have they figured out what happens to the survivor’s income when the first spouse dies? It is likely that one Social Security benefit will disappear and there may be a reduction in any pension (if relevant).
I agree, mortgage is too high for their age. I appreciate the advice to check social security benefits survivor's income. I had not even thought of that. No pension, but he is in an annuity(variable )( don't know the terms off hand , but it has guaranteed growth) for about 25 years that has a life insurance policy as part of it.

I know none of this is textbook in any stretch, but it is what my parents did years ago and they live happily and comfortably.
Topic Author
Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

fabdog wrote: Tue May 19, 2020 10:58 am So the extra money to get to 20% and avoid PMI is ~$17,667.

For the privilege of holding that and improving his cash reserve he'll pay $28/month, or $336 a year, ~1.9% plus paying the 3.499%

Of course as he pays down and gets more equity the price will rise

No clue if the $5K in credits is good or horrible. It depends on what's happening in the area. Builders will give credits to avoid a lower sales price and angering previous purchasers. 3.499% is not horrible... but there are likely better deals out there. I assume no credit if he doesn't use their in house financing?

Should be easy to get some quotes and work up a spreadsheet comparing rates and breakeven.

Mike
Thanks for your thoughts. This is my first time using the forum and I have received valuable insight. Thanks everyone.
delamer
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Re: Private Mortgage Insurance

Post by delamer »

Docdad wrote: Tue May 19, 2020 12:08 pm
delamer wrote: Tue May 19, 2020 11:19 am Is a $300,000 mortgage for people on a strict budget in their mid-80’s a good idea?

Have they figured out what happens to the survivor’s income when the first spouse dies? It is likely that one Social Security benefit will disappear and there may be a reduction in any pension (if relevant).
I agree, mortgage is too high for their age. I appreciate the advice to check social security benefits survivor's income. I had not even thought of that. No pension, but he is in an annuity(variable )( don't know the terms off hand , but it has guaranteed growth) for about 25 years that has a life insurance policy as part of it.

I know none of this is textbook in any stretch, but it is what my parents did years ago and they live happily and comfortably.
Not to dwell on the unpleasant, but while some expenses will decline when the first spouse dies the mortgage, property taxes, homeowner’s insurance, utilities, and maintenance costs will not. If you point that out to your parents before they go any further in the home buying process — along with the drop in Social Security income — you’ll be doing them a favor.
LoveTheBogle
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Re: Private Mortgage Insurance

Post by LoveTheBogle »

If you can’t put 20% down then you should find a home in which you can. It sounds like your parents are living beyond their means.

That PMI seems very low for 15% down and 300k mortgage.

Keep in mind the 5k builder credit for using their mortgage arm is given regardless of pmi. In the same vein, understand that the builder can offer the 5k credit for using their mortgage arm because they have that much more room in their margins between the two. It may make sense to shop the mortgage and see if someone is over 5k better and/or better terms that net out much better than 5k.
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OAG
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Re: Private Mortgage Insurance

Post by OAG »

The changes in SS benefits has already been pointed out. However, you may want to look at the impact of Taxes when one files Single versus Married Filing Jointly - it is significant as well as the change in the possible cost of Medicare being surcharged (depending in MAGI).
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979 21 years of service @ 38.
Topic Author
Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

LoveTheBogle wrote: Tue May 19, 2020 12:22 pm If you can’t put 20% down then you should find a home in which you can. It sounds like your parents are living beyond their means.

That PMI seems very low for 15% down and 300k mortgage.

Keep in mind the 5k builder credit for using their mortgage arm is given regardless of pmi. In the same vein, understand that the builder can offer the 5k credit for using their mortgage arm because they have that much more room in their margins between the two. It may make sense to shop the mortgage and see if someone is over 5k better and/or better terms that net out much better than 5k.
Thank you for your thoughts. Good advice.
Topic Author
Docdad
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Re: Private Mortgage Insurance

Post by Docdad »

OAG wrote: Tue May 19, 2020 12:30 pm The changes in SS benefits has already been pointed out. However, you may want to look at the impact of Taxes when one files Single versus Married Filing Jointly - it is significant as well as the change in the possible cost of Medicare being surcharged (depending in MAGI).
Thank you so much.
I was not even thinking about these factors for my parents, but I clearly need to .
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