If you’re purchasing a $250,000 home using our 5% down NO PMI loan you can save $65/month over the same conventional loan that has monthly PMI. The interest rate on the NO PMI loan is slightly higher but the payment is still less because you avoid paying expensive monthly PMI. In this case the PMI would be $81/month.
With PMI:
250,000 purchase price with 5% down has a payment of $1181/month
$250,000 purchase price with 5% down has a payment of only $1116/month
The PMI will go away on option one when you have 20% equity but that will take 8 years. After 8 years the monthly PMI goes away and option one’s payment will be $1400 or $53 less than option two however you must consider all the money you saved with the NO PMI loan over the first 8 years to find where the breakeven point is.
The NO PMI loan saved you $6240 over the first 8 years (65x12x8 = 6240). Divide that by the savings you’ll realize after year 8 ($53) to see how many months away the breakeven point is after year 8. 6240/53 = 117 months or 9.75 years. That means it will take a total of 17.75 years to breakeven. The initial 8 years of savings plus the 9.75 years to break even. Based on these figures the NO PMI loan is actually cheaper for the first 17.75 years.
That’s a long time to wait to realize savings. This is why the NO PMI option makes sense. Most people move or refinance within 7 years so chances are you won’t have the loan with PMI long enough to realize the savings. In addition saving $53 in 17.5 years isn’t going to be much when you factor in inflation.
If you have additional questions on our NO PMI options let us know. You can also complete our easy loan application by clicking the link below.