Do Not Stress About PMI

Emily Terpak September 6, 2023

Anytime you choose to put less than 20% down, you will pay something called PMI (Private Mortgage Insurance). This is a monthly charge from the lender that will eventually fall off when you reach 20% equity in your property. Many buyers will rent for years and years in order to save 20% and avoid this senseless cost. But PMI is nothing to hide away from. In fact, I would recommend embracing it if you don’t have the 20% saved already!

PMI is usually determined by the loan amount and your credit score. For example, I put 5% down on my house, my credit score was in the high 700’s, and I pay $100/mo in PMI. For quick math, that means that I pay $1200/year in PMI. And while I would love an extra $1200 a year in my bank account, I would have had to cough up another $60,000 in cash to reach 20% down and eliminate my PMI entirely.

$60,000 is no small sum! Now instead of putting that towards my down payment, imagine if I invested that into a growth stock, mutual funds, bonds, cryptocurrency, or purchased an investment property? According to the U.S. Securities and Exchange Commission, the stock market has an average historical return of about 10% a year. In this case, that would yield about a $6,000 return. Paying $1200 a year in PMI doesn’t sound so bad when you think about what that extra money could do for you when applied to a different investment. 

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