PMI and Why You Should Embrace It

[Ryan Thomson]

Are you tired of hearing about how you need to put down 20% on a house to avoid pesky Private Mortgage Insurance (PMI)? Yeah, me too. I mean, who has that kind of cash just lying around these days?

But here's the thing: all of this talk about avoiding PMI is kind of missing the point. Sure, it's an extra cost that you'll have to pay each month if you don't have at least a 20% down payment. But is it really worth it to try and save a few bucks now if it means potentially missing out on a better return on your investment later?

Let's break it down: let's say you're trying to buy a $300,000 house and you're able to come up with a $60,000 down payment (20%). That's great! But where did that $60,000 come from? Did you have to dip into your retirement savings? Did you have to skip a few vacations or pass up on some other big-ticket purchases? How many house hacks were you not able to buy over the last couple of years while you saved for 20% down?

All of those things come with an opportunity cost, and it's important to consider what you're giving up in order to save on PMI.

Now, let's say instead of putting down 20%, you only put down 5% ($15,000). Yes, you'll have to pay PMI, but you'll also have an extra $45,000 to invest in the stock market. And let's be real here: the stock market has historically had a much higher return on investment than the cost of PMI. So even if you have to pay a few extra bucks each month for PMI, you could potentially be making a lot more money in the long run by investing that extra cash.

Plus, there's always the chance that you'll be able to refinance your mortgage and get rid of the PMI once you have more equity in your home.

So before you get too hung up on avoiding PMI at all costs, take a step back and consider the bigger picture. Is it really worth it to try and save a few bucks now if it means potentially missing out on a better return on your investment later? I'll let you be the judge.