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!

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