Say Goodbye to PMI |
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A deduction of private mortgage insurance (PMI)) from your monthly mortgage payment can make a tremendous difference in your budget.
If your borrowed amount to pay for your home exceeded 80% of its appraised value, private mortgage insurance (PMI) payments are likely. PMI payments are neither trivial nor tax-deductible. Depending on your down payment, PMI can effectively raise interest rate by 0.32% to 0.93%. To get rid of PMI, prove to your lender that your mortgage balance is below 80% of your home value. Do everything it takes whether with extra payments to reduce loan balance or a new appraisal in case of rising housing values in your neighborhood. Discuss with your lender ways to eliminate PMI. Lower Your Payments by Refinancing Generally if a percentage point can be cut off the interest rate on a mortgage, refinancing is advised. But you also need to consider closing costs and points. Find the easiest ways to achieve that. Even reducing a mortgage payment by $100 a month saves you thousands over the years. Once you succeed in lowering loan-to-value to eliminate PMI, it pays to continue additional payments to principal. It's a major financial advantage to own a home outright but there's no hurry either. You will mostly emerge ahead by following a 30-year payment schedule and investing extra money in a market-matching index fund. With an online loan calculator, work out the amount you can save by paying off your loan early and compare savings with earnings from investing in an index fund at 11%. Tap into Your Equity The equity in your home could be a good source of low-interest funds for major purchases. Refinancing should be your first choice, followed by a home equity loan or home equity line of credit, which is most flexible but with highest interest rates, to generate cash for financing home improvement or other major expenses that would incur debt. If you have a lot of high-interest debt, use equity to reduce interest rates. The interest is tax-deductible too. But don't overdo it. Even though mortgages are good debt, they are still debt, so don't abuse your equity. Always remember that the collateral for the loans is your home. No matter how much time it takes, it always pays to get the most out of all your mortgage money. |
