About Private Mortgage Insurance

Pay Down Your Mortgage Faster

If you are paying private mortgage insurance and only making the minimum payments on your mortgage each month, consider adding a little extra to your payment in order to get you loan to value under 80%. For mortgage holders who aren’t paying PMI, the incentive to pay extra turns a 30 year mortgage to a 25 year mortgage… not much incentive if you only intend to stay in the house for five years. However, if you’re paying PMI, you’re paying a small premium that can be removed much faster if you accelerate your mortgage payments.

There are two ways you can pay “extra” and speed along your amortization. The first is just adding more to each monthly payment. The extra gets put towards the principal and thus your interest payments will decline (less principal to calculate interest against). The second is paying twice a month (bi-weekly). Simply take your payment, chop it in half, and pay half midway through the month and the other half at the end. The amount you pay is the same but there is less interest because there is less time for interest to accrue.

For example, if you use this calculator from DinkyTown, if you have a $100,000 mortgage and you pay it on the bank’s schedule, you hit 80% at around Month 12. If you switch to a bi-weekly payment, you go from Month 12 to Month 8, that’s four months worth of PMI you no longer have to pay.

This entry was posted on Friday, July 14th, 2006 at 7:27 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.