Paying PMI is bad. I had a new client come in for a pre-approval the other day and say that PMI is bad and he only wants loans where he doesn’t pay PMI. I asked him why, and he said because you can’t write it off and it’s a waste of money. So I gave him the option of wrapping the PMI into the rate (instead of 3.625% 30 year fixed, you get 3.99%) and I gave him the option of paying a 1 time fee of almost 2% of the loan. That way there is no monthly fee, and it would be a write off. But then he told me that the house he is buying is a great deal, and with all the longshoreman just hired he thinks that the value will go up because they “all want to live in the harbor area”.

So I asked him if he would rather pay $300 per month for the next 1-2 years ($6000) and be able to get rid of the PMI when he has the 20% equity, making his FINAL monthly mortgage payment lower. Or would he rather pay a higher mortgage interest rate forever, but save $150 per month for those 1-2 years. He saw that paying $300 per month for the 1-2 years that it takes for the value to come up or for him to pay down the loan, makes more sense than paying $150 more per month for life.

Free is not always truly free.