Eliminating Private Mortgage Insurance–An Update
Since I earned over $1000 with blogging in December, I thought I would try to pay off some principal on a rental house and eliminate private mortgage insurance (PMI) since I had read that once you had paid off the loan to 78% of the purchase price, you could do so. I called the company that services the mortgage and found out some things that I did not know.
First, I found out that my mortgage was owned by Freddie Mac. That was somewhat disappointing given all of the bad press in recent years on the quasi-governmental institutions that have been bailed out. But then again, I don’t know what else I should have been expecting, so for all practical purposes, it is neither here nor there.
I also found out that I need to pay down the loan to a much greater extent with a rental than I would with a primary residence. That makes sense since investment property is considered more risky and demands a higher interest rate for the mortgage as well. Make sure you compare mortgage rates to get the best deal. However, I was somewhat shocked that the requirements for Freddie Mac are a 65% loan-to-value. The bottom line is that I don’t have $15,000 lying around to simply eliminate PMI. I would save $66 per month or $792 on a $15,000 investment giving me a yield of just over 5%. Certainly not the best use of funds even if I did have them.
Going With Plan B
Or should I say, “Back to the original plan”? The original plan was to pay off a business credit line with an 18% interest rate. At the time, the balance was about $1000 with a most recent monthly payment of $68. Over the next year, then my cash on cash return would be $816 saved in payments for a $1000 investment which does wonders for the monthly spending plan.
So, that is exactly what I did. I paid off the business credit line and will next start working on paying off the Discover Card as I had mentioned previously. I won’t be making any significant progress on that credit card balance this month since I haven’t quite earned $1000 yet and will be spending some of my blogging income on paying authors for the new blog and for funding my recent contest.
However, I hope to make a decent dent in the Discover Card balance in February since I have little anticipated blogging expenses other than paying authors and hope to make close to $1000 in that month as well. It has been a rough few weeks from a revenue standpoint, but I think that I can expect blogging income to be variable with some ups and downs.
Paying More Than the Minimum
I am already paying more than the minimum. Since I have been doing my best not to add to my overall credit card balances, as the minimum required payments on some of the other cards decreased, I shifted the difference to the Discover Card so that I am still making a decent sized payment each and every month without adding any of the blogging income. Now that I have paid off a business credit card and a business line of credit, I should be able to make more rapid progress on the Discover Card.
Then it will become a matter of figuring out the next debt to tackle and so on and so forth. I can only hope to maintain the intensity (which I think I will do) and avoid any of those nasty financial surprises that can derail even the best of plans.
Wish me luck!