PMI wipe out or new property?

Question

I have one rental in ATL where I use to live before being transferred to Chicago for my job where I currently rent.

I currently pay $250 a month in PMI and have $13,000 to go before reaching the 20% equity mark that my mortgage company requires before removing the PMI. I have the opportunity to take a private loan out for 5 years for up to $20,000 at a 4.75% interest rate.

I am having the dilemma as to weather I should take out $13,000 to pay off the PMI and save the $9,000 I would waste in PMI in my current pay off schedule or take out up to $20,000 to invest in a new rental property?

Based on my calculations I am estimating that for the new rental property to be beneficial I would need to buy a 100K house or less to be able to afford the 20% down my bank is requiring and it be able to generate a minimum of $375 in positive cash flow to cover the loan payment.

I feel as though the PMI payoff is the better more guaranteed investment route but the thought of a new property is making me droll.

Tim Davids · Answer

interest on a loan is tax deductible I think. Is pmi deductible ?

Personally I'd find a way to get the pmi gone. It's money down the drain and you could always get a home equity loan in an emergency.

Shawn Mcenteer · Answer

@Dustin Caldwelll Have you shopped around? I am in a similar predicament and will be able to reduce my PMI substantially by putting down the difference of 5%. Maybe ask your lenders "is there any way I can reduce my PMI?" I am working a neat scenario right now in my primary residence. I purchased my property 3.5% FHA and have to option to pay about $8,000 more to cover the difference. Instead of paying the difference my wife and I have been upgrading our home to increase the value. Once we are done we will simply pay for the appraisal + about $500 in Home Depot expenses. Most of what we did we learned from friends and Youtube.

Cal C. · Answer

From what I understand it may take substantially more than 20% of equity to get the banks to release your pmi. They may require you to pay for an appraisal because the house might be worth less than what you bought it for. Also, how does paying $13,000 plus 4.75% interest help you to pay $13,000? I don't get it.

PMI wipe out or new property?

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