PMI with a lower interest rate or no PMI and a higher rate

[Craig Desnoyers]

Hey everyone, 

This week I signed my first contrast for a duplex and went to two different lenders in my area for pre-approvals. My question is which loan is better in the long run. I am purchasing the property at 125k with 10% down. 

First lender offer: 3.25% Interest with PMI $38/month

Second lender offer: 3.75% Interest with no PMI

Does it make sense to take the lower interest rate with a PMI and make extra payments over the next 2 years so I can remove the PMI early so I have a lower payment.

[Charlie Fitzgerald]

I would do just the opposite. The higher rate lasts for as long as you have that loan in place. The PMI lasts only as long as you are above 79.9% LTV. You could get rid of the PMI in 12-24 months with a little extra cash thrown at the payment, and then enjoy the lower rate AND no PMI for the remainder of the note.