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Borrower Paid PMI on my loan would amount to $70/mo. The interest rate will be 3.5%. Purchase price is 150k, and loan amount is 142,500.

Interest rate on Lender Paid PMI is 4.125%.

If I go with Borrow Paid PMI, I will pay $30 extra per month until the PMI drops off. Then, I will continue to pay the same amount of money--however, since the PMI will be gone, there will be an extra $100/mo applied to the principal.

If I go with Lender Paid PMI, I will pay $100 extra per month for the life of the loan.

Can anyone tell me whether Borrow or Lender Paid PMI would be better in these scenarios? Also, does the equation change if we end up staying in the home less than 10 years?

Thank you!
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How long before PMI drops off?

The lower interest rate should more than offset the $30 charge.

The only downside I see is that the $30 a month higher payment.
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Borrower Paid PMI on my loan would amount to $70/mo. The interest rate will be 3.5%. Purchase price is 150k, and loan amount is 142,500.

Assuming the house appraises for at least $150k, PMI will be required to be dropped after a maximum of 99 months (8 years, 3 months) on this loan, when the principal balance drops below $117k (78% of the original sales price, or original appraisal price, whichever is lower). Upon your request and at the lender's discretion, PMI can be removed when the principal balance is less than 80% of the current value of the home, so it is possible that PMI could be cancelled earlier than 99 months.

On this loan, your P&I payment will be $640, and the cost of the interest for the first month will be $416. Add the PMI cost of $70 to that, and your interest and PMI cost the first month will be $486. This monthly cost will drop from here, as the principal balance decreases.

After 5 years, this loan will cost you $27,912 in interest and PMI.
After 10 years, this loan will cost you $51,550 in interest and PMI.

Interest rate on Lender Paid PMI is 4.125%.

On this loan, your P&I payment will be $691, and your initial monthly cost for interest will be $490 - $4/month higher than the combined interest and PMI payment on the other loan. The interest cost on this loan will also decrease, but the cost of this loan in interest will always be higher than the cost of the borrower paid PMI loan.

After 5 years, this loan will cost you $28,084 in interest.
After 10 years, this loan will cost you $53,114 in interest.

If I go with Borrow Paid PMI, I will pay $30 extra per month until the PMI drops off.

Well, I only see that there is a $21 difference - $711 in principal, interest and PMI on the borrower paid loan vs. $690 in principal and interest on the lender paid loan.

Can anyone tell me whether Borrow or Lender Paid PMI would be better in these scenarios?

The borrower paid PMI loan will cost you less, starting with month 1, assuming you can afford the additional cost of the PMI in your cash flow initially.

Also, does the equation change if we end up staying in the home less than 10 years?

No.

Please note - tax deductibility may change the analysis slightly, but since tax laws are subject to change, while the interest costs are not, the borrower paid PMI loan is probably still the better choice, with any tax benefits assumed to be 'extra'.

AJ
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Can anyone tell me whether Borrow or Lender Paid PMI.....

Well, AJ just provided a fantastic analysis and I would agree with everything she outlined. You do know, this would have been a fair question to ask of the lender who provided the quotes. I suggest you ask your lender, see if they nail it as accurately as AJ. Also, I pulled up rates, and the difference I'm seeing is only a quarter point in rate for the two options. Not sure why your lender is showing a 5/8ths spread of 3.5 to 4.125 for the two options. While the loan amount drives that to some extent, it's rare to see that big a change in rate.

If I go with Borrow Paid PMI, I will pay $30 extra per month
<snip>
If I go with Lender Paid PMI, I will pay $100 extra per month for the life of the loan.

The borrower paid MI comes to $640. + $70. or $710. The lender paid MI with the higher rate comes to $691. Add your extra payments and you are at $740. / $791. I understand, eventually the MI drops off, but your calculations for mailing in extra to reduce principal are off. AJ showed how much of each first payment goes toward interest. The balance of payment is applied to principal, and that figure is not a $70. a month difference. Quick calculation has me at about $25. a month.

I'm lost as to why you would add $30. to one option and $70 to the other option?

*********

AJ ~

The borrower paid PMI loan will cost you less, starting with month 1, assuming you can afford the additional cost of the PMI in your cash flow initially.

AJ - you really rock. They way you evaluate info and outline answers is outstanding. I have a guess of your occupation but don't know for sure. You do certainly know the servicing side of the mortgage industry. Why don't you originate?
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AJ - you really rock. They way you evaluate info and outline answers is outstanding. I have a guess of your occupation but don't know for sure. You do certainly know the servicing side of the mortgage industry. Why don't you originate?

Thanks. I am an ops analyst supporting customer service and back office operations (think forecasting, budgeting, process improvement, etc.) mostly in the financial services industry. I have specifically worked in credit cards (both prime and sub-prime), mortgage servicing, payroll services, general banking and (just for a bit of variety) cell phones.

Doing ops analysis for the customer service/back office areas, I've been able to learn a lot about each industry, especially when new regulations are implemented (constantly in financial services for the last 4 - 5 years), since those changes result in process changes that need to be analyzed.

Originations - not really my cup of tea, as I am mostly a numbers geek and not so much of a customer interface person. I am constantly amazed at how patient people who are good at customer interface are. The reps who have sat near me - I could never do their job, although I have been through training and taken some phone calls in some of my assignments, I was always really glad when I completed that part.

AJ
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AJ, thanks for the info. I've always considered you a generous poster, freely sharing your expertise with others. Even when it's the same question asked repeatedly. Don't sell yourself short on the amount of patience you yourself demonstrate.
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