Year: 2019

It is official! Finally! I was able to get rid of my $95 per month PMI (Private Mortgage Insurance) payment on my 3.5% down home loan.

I couldn’t be happier with eliminating an expense that adds no value to my life. PMI is definitely one of those.

What is PMI?

For some of those who might not know, let me first explain what Private Mortgage Insurance (PMI) is. Private Mortgage Insurance is something you pay on top of your mortgage when you put less than 20% down. This extra payment helps “protect” the lender as you have a higher rate of defaulting on the loan. To be clear, this money doesn’t go towards the pay down of your principal payment. This is an additional payment you don’t recoop. I don’t believe this statement to be true, but this world isn’t fair!

How I Got Rid Of PMI In 3 Years?

Now comes the fun part. Six months ago, I didn’t have a great understanding of what PMI was. Once I finally learned what it was I went on a quest to try and better understand what my options were to get rid of PMI.

There is no better way to do this than call your loan provider. So that is exactly what I did. My home loan provider is Mr. Cooper. I was shortly after transferred to the PMI department. Yes, that is right, they have a separate department entirely for PMI.

I explained my situation to the PMI person (like I knew what I was talking about) and asked what options were available to remove the PMI. This is where things got interesting.

The individual on the other end of the phone told me there were three different ways to get PMI removed:

1. I would have to have my principal balance owed to be at a 80% Loan to Purchase Price. This means, for simplicity, if I bought the home for $100k, my principal balance would have to $80k or less.
2. If number one wasn’t true, then I could pay, in cash, the difference to get to a 80% loan to purchase price. To keep numbers simple, if I put 3.5% down on a $100k property, my loan principal would be $96,500. To get to an 80% LTP I would need to pay $16,500 in cash on my principal balance.
3. I could get the home appraised based off a BPO and if my principal balance was less than 78% of the new appraisal price then the PMI would be removed. This would mean if I owed $78k in principal but the home appraised for $100k then the PMI would be removed.

Perfect. I know knew the different options I had for PMI removal. When analyzing the different options, I wanted to figure out what would have the largest ROI (return on investment).

Analyzing the 3 options

Option 1: This isn’t really an option but more of a binary yes no. Since I put down 3.5% and I was 3 years into my debt payoff, I was far away from this being true. Option 1 is officially axed.

Option 2: In my particular scenario I put down 3.5%. I purchased the property at $292,000 meaning I paid $10,220 towards principal. That means my remaining principal balance started at $281,780. Three years into the loan and my balance was roughly $270,000. To have an 80 percent loan to sale value, my principal balance would need to be $233,600. Well….way off there. This would cost me $36,400 to get rid of PMI in cash. The return on investment would be almost 32 years!!!! That is insane and there is no reason to pay that amount of money to get rid of a $95/month payment.

Option 3: Down to the last and final option! I could get an appraisal to see what my homes current value is. Based off the principal balance being roughly $270,000, I would need the home to appraise at $346,153 to have a 78% loan to value (LTV). To get this number, I divided my principal balance ($270,000) by .78.

Now that I knew where my appraisal needed to come in at, I started looking at prices for similar homes in my area. I started seeing my home should come in around that price so I decided to move forward with getting an appraisal!

A few weeks later, I had the appraisal done and before I knew it, I got a notification from my lender that my payment price would drop by $95 per month.

I am all for spending on things you enjoy in life, but paying $95/month and never seeing it again was a waste. Not bad to be able to end this expense with little effort put in on my side.

Key Takeaways:

• PMI is a big part of how lenders protect themselves when taking on loans where the individual taking out the loan puts low money down.
• If you are paying PMI, call your lender to find out what options you have to get rid of it. They are very open to having the conversation. Especially if you always pay on time!
• Cut expenses that you are wasting money on and don’t bring you any happiness! This expense was exactly that! I would never see this money ever again as it is not added to your principal payment.

Understanding this one simple concept can launch on an expedited path to financial independence.

Here we go math nerds! This concept, the Pareto Principle.

This concept is very straight forward, and applies to all aspects of your life. Since this is a great community of financial independence seekers, let’s apply this to finances.

Pareto’s Principle states a rule known as the 80/20 rule. This rule states roughly 80 percent of your effort creates 20 percent of the results. This then means 20 percent of your effort accounts for 80 percent of your results.

Now let’s try to apply that to finances. In a financial context, this means 80 percent of your spending applies to 20 percent of the things you spend on. When you take a step back and begin to analyze your expenses, notice where the majority of your spend comes from. The three largest expenses, for most individuals, are your housing, transportation and food.

Now there are other individuals who have gone even further to investigate this. When you breakout the typical 20 percent of your expenses, you find a chart like what is shown. This then goes to say that your single most important expense is housing!

Optimize your housing expense and you can crush it. I have done so through house hacking. This has been a great way to live for free and cut my single largest expense every month.

This principle can applies to all parts of the world we live in. It is interesting when you sit back and audit your lifestyle to better understand what your 80/20 is!

Leveraging travel rewards can be a lot of fun, if done the right way. I switched from Hilton to Marriott this last year for hotel stays when I travel. I had heard a lot about Marriott having much better rewards. So far, I agree the rewards they have are pretty awesome.

I was checking the Marriott app the other day to notice that I was about to have a free 40,000 night expire! I couldn’t believe I was about to lose out on free money! With that in mind I started thinking of a cool place to go for a short getaway. Work has been stressful the last month or two as we are gearing up for Black Friday and Cyber Monday.

How I earned the free night certificate?

There is something very slick Marriott has started doing. Marriott has a part of the app where they put there promotions. They don’t always advertise the promotions themselves. This particular one I don’t blame them. One day when I was looking on the app, I noticed a promotion for stay 2 nights for one free night up to 40,000 points! Not only was this promotion out there, but you could earn up to two free nights! With how much I travel for work, this would take me one week to earn both free nights. The next week, I booked two different two night stays…and boom,o 40,000 points.

What to be careful of!

Here is something to be very careful of! It sounds so simple, but still something worth noting.

Don’t forget about your certificates! I waited till the last minute to book this hotel room. The certificate expired on 10/14/19 and I booked the room on 10/13/19…not much room there. To be honest, I forgot that I even had the certificate and was luckily looking through the app and saw it! Don’t forget about any of the rewards you have and make sure you use them! That is $225 in free money that could have been gone forever.

What the expiration dates mean?

Here is another thing I learned from the process. If the expiration date says 10/14/19 that means you have to use it by 10/13/19. I also learned this the hard way. I called Marriott last night because I had a second night to use and I was planning to book another hotel room last night. When I opened the app it showed the certificate expired.

I called Marriott and let them know that I thought the expiration date meant by the certificate must be used by that day at 11:59 pm. That was not the case. I asked if there was anything they could do for me.

The lady I spoke to told me she would try to re-issue the certificate. Luckily she was able to do this! Not only was she able to re-issue the ticket, but she also put the new expiration date a year from now! Double win!

Key Takeaways:

• Don’t forget to look at the Promotions section of the app for your rewards programs
• Don’t forget your certificates do have expiration dates!
• Take time to get away and relax. You deserve it.