To be perfectly honest, I hadn’t actually run the numbers yet. And, to continue in perfect honesty, I still haven’t really run the numbers. Instead, I talked someone on the Rockstar Finance forums into doing the math for me, because I’m lazy bum. Specifically, the lovely folks from Debt Ascent applied their mathematical prowess to my conundrum, for which I am exceedingly grateful.
If you don’t want to click the link above, the math goes like this: if I invest the amount that I would otherwise put into paying down the house to get the PMI off this year and continue investing that amount indefinitely, I could conceivably have $34,000 more at the end of my loan period. Behold, the power of compound interest.
That number is not totally accurate. I would be able to pay off the PMI a little sooner than the assumptions made in the calculation, both because I can make payments of slightly more than $1,000 for the next year, and because I confirmed that the PMI comes off at 80% of the home’s value, not 78%. Still, the difference is large enough that, from a pure math perspective, it makes more sense to not pay off the PMI.
I have additional reasons I want the PMI gone, however. It’s frustrating to know that we’re paying $600 a year for the “privilege” of borrowing money. As a principle, I oppose PMI. It’s also nice to think that if we needed to move rapidly, we would have at least enough equity in our house to get us into another.
Having the extra $50 of flexibility n our budget each month would also be nice. We will likely not have an “extra” $1000 each month for the next couple of years, for mysterious undisclosed reasons. This is going to be somewhat of a windfall year, and then the budget will be tighter for a few years afterward, unless we receive substantial raises. Extra wiggle room is always helpful.
On the other hand, the fact that we won’t be able to continue investing at a super high rate for the next few years is an argument for exactly why it may be smarter to invest now. That gets the ball rolling on our compound interest sooner rather than later. But the stock market is really high and may be headed for a correction… but maybe not?
Ultimately, I’m all for keeping the “personal” in “personal finance,” but I also know that the way to win with money is to make decisions based on numbers, not the heart.
So tell me, dear readers, what would you do in our case?