One of the nasty side effects of the financial Crapocalypse of 2008-2009 has been the increased (lifelong) cost of Private Mortgage Insurance (PMI). It’s that terrible little (big) expense that you pay when you don’t have at least 20% ownership (equity) of your home. Lenders require you to pay for a third party, a Private Mortgage Insurance company, to insure your ability to pay your mortgage company. The cost of this premium is based on the size of the loan and the quality of your credit score. Generally, this PMI goes away after a few years because you have “achieved” 20% equity in your home. This is accomplished through housing market appreciation and/or mortgage paydown. Well, things have changed.
You see, the housing market forgot to appreciate. Yes, this sucks, but now it sucks for yet another reason. It seems like it’s going to take you forever to get rid of that stupid Private Mortgage Insurance expense. In fact, you may own less of your home than you did prior to the recession because the value of your home has fallen. Here’s what that turd looks like:
Home Value $200,000
Mortgage Amount $180,000
Home value $170,000
Mortgage Amount $170,000
Oh SNAP!!! You bought the home and assumed that you could drop the extra $189/month (estimated) PMI expense in a few years once you’ve paid down your loan and the market continued to rise (thus giving you 20% ownership of your home). Well, I intended for my forehead to not turn into a sixhead via hair loss. But shiz happens and now I have more hair on my forearms than my sixhead.
So, what should you do? I’d just give up. Giving up always works. As my wife’s grandmother once told my marathon-running wife, “if your run ever gets too hard, just give up.” No, really. She said that. She’s a lovely woman, but that might have been the worst piece of advice ever doled out. Of course you shouldn’t give up. You should put together a plan. You are throwing money away towards PMI. It protects the bank, not you. Yes, it’s tax deductible, but who gives a damn? You need to consider the amount of money that exists between your current home equity (presumably less than 20%) and your “goal equity” of 20% as credit card debt. Ugly nasty-ass credit card debt.
What do I mean? Look at this:
Current Home Value $170,000
Current equity 12% ($20,400)
Goal equity 20% ($34,000)
Therefore you need to view the difference ($13,600) as nasty-ass no-good pointless stupid credit card debt. Channel your anger, and point it toward this awful sonofabitch-of-money. Get my point? You need to view it as evil. Seriously, vial.
If you work hard to pay this off, then you will have accomplished two really important things. 1) You will have increased your home equity. 2) You will eliminate your PMI expense. If you do this 5 years early, which is entirely possible, then you will have saved $11,340 in PMI expense based on ($189/month PMI). You could use that $11,340 for anything you want. May I suggest hair plugs for your favorite snarky financial blogger?
Who’s your boy?
******Special thanks to Steve Jackson from Main Street Financial for helping with some PMI info.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.