topic Re: Personal Loan to eliminate PMI in Personal Finance

Personal Loan to eliminate PMI

voxombmx — Fri, 22 Mar 2019 13:56:02 GMT

Can a personal loan be obtained to pay mortgage down to 80% LTV? If so, is the math as straight forward as it appears? Numbers used are obviously rounded for easy reading(math).

Appraised Value $178,000

30yr Fixed Conventional Mortgage at 3.25%

Mortgage Balance $156,400

PMI $206/mth until 7/1/2024 (63 months totaling $13,000)

Prequalified for $15,000 Personal Loan 5 years at 6.99%

$317/mth

$3,000 interest over loan life

Is it a simple as I can pay $3k interest vs $13k PMI and ultimately be $17k ahead mortgage principal balance?

Re: Personal Loan to eliminate PMI

Revelate — Thu, 21 Mar 2019 17:23:08 GMT

I truly don't know PMI, if it vanishes like a fart in the wind once you get to a percentage of your original loan balance (or current appraised value) then I think your plan absolutely has merit.

I think you still need to do the math at applying the additional money you'd be paying to the installment loan directly to the mortgage instead of taking out the loan, but I suspect you're going to come out ahead if the PMI gets kicked to the curb basically immediately.

Apologies way too tired and crankly to try to even napkin math it haha, breaking down and getting coffee this morning after this forum tour.

Re: Personal Loan to eliminate PMI

Shooting-For-800 — Thu, 21 Mar 2019 20:55:07 GMT

Your PMI is $2500 per year on a $178k loan?

I don't think it is that simple and I would not do it.

I would either look at HELOCs or refinancing when you find a better rate and low closing costs and can eliminate PMI.

Re: Personal Loan to eliminate PMI

tcbofade — Fri, 22 Mar 2019 00:28:06 GMT

Don't forget DTI calculation.

You'll have to count the personal loan payment in your new front AND back end DTI.

Re: Personal Loan to eliminate PMI

CreditInspired — Fri, 22 Mar 2019 12:48:39 GMT

@voxombmx wrote:
Can a personal loan be obtained to pay mortgage down to 80% LTV? If so, is the math as straight forward as it appears? Numbers used are obviously rounded for easy reading(math).

Home Value $178,000
30yr Fixed Conventional Mortgage at 3.25%
Mortgage Balance $156,400
PMI $206/mth until 7/1/2024 (63 months totaling $13,000)

Prequalified for $15,000 Personal Loan 5 years at 6.99%
$317/mth
$3,000 interest over loan life

Is it a simple as I can pay $3k interest vs $13k PMI and ultimately be $17k ahead mortgage principal balance?

I think the most important thing would be to get an appraisal first to make darn sure the LTV ratio is ~75%. You don’t want to take out a loan, apply it to mortgage, only to find out appraisal is coming in lower than $178K.

Also I would check with lender and ask what is needed to get PMI dropped. I’m talking exact figures.

Just my 2cents.

Re: Personal Loan to eliminate PMI

voxombmx — Fri, 22 Mar 2019 13:54:59 GMT

@CreditInspired wrote:
@voxombmx wrote:
Can a personal loan be obtained to pay mortgage down to 80% LTV? If so, is the math as straight forward as it appears? Numbers used are obviously rounded for easy reading(math).

Home Value $178,000
30yr Fixed Conventional Mortgage at 3.25%
Mortgage Balance $156,400
PMI $206/mth until 7/1/2024 (63 months totaling $13,000)

Prequalified for $15,000 Personal Loan 5 years at 6.99%
$317/mth
$3,000 interest over loan life

Is it a simple as I can pay $3k interest vs $13k PMI and ultimately be $17k ahead mortgage principal balance?

I think the most important thing would be to get an appraisal first to make darn sure the LTV ratio is ~75%. You don’t want to take out a loan, apply it to mortgage, only to find out appraisal is coming in lower than $178K.

Also I would check with lender and ask what is needed to get PMI dropped. I’m talking exact figures.

Just my 2cents.

I could have posted the exact figures down to the penny here but chose to use rounded figures for ease of typing and simply asking a question that I don't believe I have great understanding.

I'll edit my original post to reflect that the 178k is the current appraised value of the home.

Wells Fargo mortgage consultant stated that the LTV needs to be at 80% to remove PMI

Re: Personal Loan to eliminate PMI

voxombmx — Fri, 22 Mar 2019 14:10:03 GMT

@Shooting-For-800 wrote:
Your PMI is $2500 per year on a $178k loan?

I don't think it is that simple and I would not do it.

I would either look at HELOCs or refinancing when you find a better rate and low closing costs and can eliminate PMI.

I feel as though you missed the point of my question. If I cannot pay the mortgage down to the 80% at this point, how would I refinance, pay closing and put money down to get to 80% LTV?

I'm simply asking if it is possible to not pay 13k over the next 63 months. The personal loan would go directly to principal, PMI would be eliminated once payment posts and we would then only incur the interest penalty on the loan. It makes sense to me but I do not know if there is something I don't see or understand?

Re: Personal Loan to eliminate PMI

voxombmx — Fri, 22 Mar 2019 14:16:05 GMT

@tcbofade wrote:
Don't forget DTI calculation.

You'll have to count the personal loan payment in your new front AND back end DTI.

I'm not sure I understand this? If loan is for 15k and then that is directly subtracted from mortgage principal, would we not be net zero?

We effectively have $600/month that is now "free" after both of our 36 month vehicle loans were paid as of 3/7. If we chose to put the $600 month directly toward the principal of the home we still wouldn't reach 80% LTV for almost 3 years. I'd much rather put that money back toward the personal loan rather than continuing to pay for PMI if possible.

Re: Personal Loan to eliminate PMI

Anonymous — Fri, 22 Mar 2019 15:32:14 GMT

Personally I would NOT trust wf. They will have done at your expense another appraisal. Their numbers will probably come up short. Be prepared for several more thousand dollars to put in to this

Re: Personal Loan to eliminate PMI

Kforce — Fri, 22 Mar 2019 20:04:57 GMT

@voxombmx wrote:
Can a personal loan be obtained to pay mortgage down to 80% LTV? If so, is the math as straight forward as it appears? Numbers used are obviously rounded for easy reading(math).

Appraised Value $178,000
30yr Fixed Conventional Mortgage at 3.25%
Mortgage Balance $156,400
PMI $206/mth until 7/1/2024 (63 months totaling $13,000)

Prequalified for $15,000 Personal Loan 5 years at 6.99%
$317/mth / $3,000 interest over loan life

Is it a simple as I can pay $3k interest vs $13k PMI and ultimately be $17k ahead mortgage principal balance?

A mortgage loan rate is determined by your credit profile which includes every thing.

Credit scores, utilization, debt to income ratio, other debt (loans, child support, back tax's), etc.

If you add a "New Ppersonal Loan", all those factors shift and they could cancel the mortgage offer, or at a minimum change the interest rate. (higher) Same is true if you take the mortgage loan. You scores and profile will shift and the personal loan numbers will most likely change. After a mortgage post, you might be able to get a personal loan however the interest rate would likely be higher and the loan amount lower.

1. Make sure that the PMI falls off if you pay mortgage down below 80%, with no added cost.

( Not stuck with full $13000 loss, if you pay down faster )

2. Lock in your mortgage at best rate possible and pay the PMI

3. Look at the feasibility of getting a personal loan to get below the 80% threshold.

( Maybe even with the new mortgage you can get enough at a decent rate to make it work )

4. If you can't get the personal loan, you could just pay extra every month.

A couple hundred every month on mortgage will save you 2 years off PMI, and gain some equity.

5. Don't take out a personal loan before mortgage closes or get a new credit card.

Re: Personal Loan to eliminate PMI

dragontears — Fri, 22 Mar 2019 21:40:30 GMT

I don't understand everyone's responses.
Unless I read it wrong the OP already has the mortgage (a 3.25% interest rate would suggest (s)he has had it for awhile) and is looking for ways to get rid of PMI without refinancing (I personally wouldn't want to refi a loan with 3.25%).
OP, I am assuming that you have a conventional loan (if you have a FHA loan your PMI will not go away unless you refi to conventional), you need to look closely at your loan documents. Most of the time PMI is automatically dropped when the LTV reaches 78% not 80% and frequently there is a minimum time before you can request that the PMI be removed. Also, your lender may make you pay for an appraisal to "make sure that the value has not decreased".

Re: Personal Loan to eliminate PMI

tcbofade — Sat, 23 Mar 2019 12:24:21 GMT

Thank you Dragon... I think we all misread the intent here.

OP, verify... in writing... that paying down the mortgage will drop the PMI. Once you have THAT in hand, execute the personal loan and save yourself the dollars!

Good luck!

Re: Personal Loan to eliminate PMI

Anonymous — Sat, 23 Mar 2019 13:17:48 GMT

dragontears had a very good reply.

It took a while to understand what OP was trying to say,

but yes make sure you have a conv loan and 78% is prob the magic number, verify this.

OP wants to use loan to PREpay payments $13000. which will push out the payments, and will lower his/her principal.

However, this $13k is not going directly to principal due to ammortization (so keep that in mind)

with my WF mortgage, this is how it worked for me, but it was a bit diff scenerio as

I applied $X amount to principal and then hit the 78% way back when I did.

Since it was to principal, it DID NOT push back payment due date....however that was not my intent.

I had the extra to continue to make reg payments month to month etc.

It was also in the first year, so no new appraisal was needed, the % was off the appraisal done at purchase.

I would suggest to check with your WF consultant and see if your terms are at 78%,

and if new appraisal needs to be done,,,then do the math to see what is best for you.

There are some online mortgage calculators to see how much is saved etc.

I will congrat you on the 3.25% rate! that is super!

good luck

Re: Personal Loan to eliminate PMI

Kforce — Sat, 23 Mar 2019 16:24:54 GMT

@tcbofade wrote:
Thank you Dragon... I think we all misread the intent here.
I sure did, I thought this was pre mortgage planning / not post mortgage options
OP, verify... in writing... that paying down the mortgage will drop the PMI. Once you have THAT in hand, execute the personal loan and save yourself the dollars!
+ 100, will save a lot of you can get that rate and amount.

Good luck!

Re: Personal Loan to eliminate PMI

voxombmx — Sun, 24 Mar 2019 15:16:52 GMT

@Anonymous wrote:
dragontears had a very good reply.

It took a while to understand what OP was trying to say,

but yes make sure you have a conv loan and 78% is prob the magic number, verify this.

OP wants to use loan to PREpay payments $13000. which will push out the payments, and will lower his/her principal.
However, this $13k is not going directly to principal due to ammortization (so keep that in mind)

with my WF mortgage, this is how it worked for me, but it was a bit diff scenerio as
I applied $X amount to principal and then hit the 78% way back when I did.
Since it was to principal, it DID NOT push back payment due date....however that was not my intent.
I had the extra to continue to make reg payments month to month etc.
It was also in the first year, so no new appraisal was needed, the % was off the appraisal done at purchase.

I would suggest to check with your WF consultant and see if your terms are at 78%,
and if new appraisal needs to be done,,,then do the math to see what is best for you.
There are some online mortgage calculators to see how much is saved etc.

I will congrat you on the 3.25% rate! that is super!
good luck

Yes, my apologies, in an attempt to keep my original post free of meaningless details, so it was easier to read, it appears I had done just the opposite.

I am 30 months in to the mortgage, at time of purchase the home was appraised below selling price, so my down payment was basically sufficient enough to obtain the mortgage but not at the 20% we had hoped. My wife and I decided that because the home checked all of the boxes that you can't "renovate" (acreage, barn, zoning and proximity) that we would deal with the PMI and try to pay down as quickly as possible.

I am not looking to have any payments pushed back, simply trying to reduce the cost I would have to pay for the privilege of having the mortgage. I'm grateful that we had the opportunity and understand what the PMI is protecting, I'm not disillusioned and feeling like I'm paying for no reason.

I appreciate the feedback and advice on this forum that has helped me tremendously over the last 3 years, so I came back in an attempt to put myself in a better position moving forward. I will gladly pay for a new appraisal as we have remodeled the master bed/bath and made some repairs noted in original appraisal.

I wanted the collective minds to help me understand whether or not the personal loan was a viable option to lessen my overall cost and move forward without a setback that I don't or can't see.

Thanks again for all of the replies.