THREE REASONS WHY PMI COULD BE YOUR FRIEND

THREE REASONS WHY PMI COULD BE YOUR FRIEND

Many mortgage loan programs today allow homebuyers to use less than a 20% down payment when buying a house.  When you do this, you are often required to pay Private Mortgage Insurance (PMI).  This increases your mortgage payment slightly.  Here are three reasons why PMI is actually a huge benefit to you:

1 – PMI Allows You to Buy Now Instead of WaitingFor example, assume houses in your market are going up in value by 3% per year.  If you buy a $200,000 house now, you save $6,000 vs. waiting a year. Plus, that $6,000 in house price appreciation becomes extra wealth that you’ve just created for yourself.  PMI allows you to buy now and benefit from future house price increases.

2 – PMI Frees up Funds to Pay off Higher Interest Rate DebtFor example, if you have credit card debt at 9% and mortgage rates are 4.5%, you may be better off putting less than 20% down.  Instead, you could use a portion of your down payment funds to pay off the credit card debt. PMI allows you to do this.

3 – PMI Frees up Funds to Invest at a Higher RateWhen you use money for a large down payment, you are missing out on the opportunity to earn a rate of return on that cash. Is your rate of return on investments greater than the cost of a mortgage with PMI? If so, it may make sense for you to put less than 20% down, use a higher balance mortgage with PMI, and keep your funds invested.

PLEASE NOTE: This article is provided for illustrative purposes only. It is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest rate. 

Contact me to run the numbers for your situation.

TWO WAYS TO BENEFIT FROM RISING HOUSE PRICES

TWO WAYS TO BENEFIT FROM RISING HOUSE PRICES

House prices have gone up in many markets across the country. The chart below illustrates what this could mean for you based on your home value and the rate of appreciation in your neighborhood.



Here are two ways you may be able to benefit if your home has gone up in value:

1 – Cash-out Mortgage RefinanceYou may be able to access some of your newly created home equity by refinancing your mortgage into a higher-balance loan. Cash-out proceeds may be used for:

• Debt consolidation – pay off other debts with higher interest rates
• Home improvements – make new indoor or outdoor improvements to your home
• Any other purpose including other large upcoming expenses

2 – Sell Your Home with Tax-Free Capital GainsIf you’ve lived in your house as your primary residence for two out of the past five years, you may be able to sell it at a profit without having to pay any capital gains taxes.  The limitations on this are $500,000 of tax-free gains for married couples filing a joint tax return and $250,000 of tax-free gains for individuals or married couples filing separate tax returns.  For more details, see my article titled, How to Get the Primary Residence Capital Gains Tax Exclusion.

PLEASE NOTE: This article is provided for illustrative purposes only. It is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest rate. 

Contact me to run the numbers for your situation.