Getting rid of PMI (part 4): Hard work vs. a risky shortcut

Part of a series:

• Getting rid of PMI (part 1): The P stands for “parasite”
• Getting rid of PMI (part 2): The M stands for “misdirection”
• Getting rid of PMI (part 3): The I stands for “I already told you”
• Getting rid of PMI (part 4): Hard work versus a risky shortcut
• Getting rid of PMI (part 5): The moment of truth?

So I finally learned that I had two options in order to remove Private Mortgage Insurance (PMI) from my SunTrust mortgage.

• I could get a new appraisal on my property. If the new property value was high enough such that I had a 75% LTV, I could remove PMI (once my mortgage reached 2 years in age).
• I could pay down the mortgage to 80% LTV based on the original purchase price and remove it right then.

Armed with that knowledge, I could make an informed decision. Here’s what I came up with and why.

New appraisal: Pros

Home prices in Portland have been going crazy. While it’s never as chap as, say, Texas, today Portland has a convulsive housing market that is pushing people out of their homes, demolishing historic buildings, and replacing them with (often eye-poppingly awful) high-rises. It’s no Seattle, but it sometimes feels like it’s only a matter of time.

In my case, this kind of benefits me, because I’m a homeowner, and property values are going only in one direction (at least for the time being).

So even though it was a little over a year since I closed on my home that I started this project, it seemed not too far-fetched that the price could in fact have risen enough to give me a much better LTV.

New appraisal: Cons

The question is whether, between the price increase and the amount I’d paid off, whether it would be enough to get to 75% LTV. And in order to find out, I’d have to order an appraisal. And pay for it.

It turned out that I couldn’t just use any appraiser; I had to go through SunTrust. Great.

Now call me paranoid, but it’s not hard to believe that an appraiser ordered through the mortgage company might have a desire to keep the valuation as low as possible.

As an appraisal could cost the equivalent of a few months worth of PMI, and with no guarantee of success in outcome, this felt risky.

Original value: Pros

So what if I just paid down the mortgage to 80% LTV based on the original value?

The most obvious benefit here is that there is no ambiguity. I know exactly what need to be done, and what target to hit. I just need to do it.

Original value: Cons

The problem is that doing it is hard and slow. There are no shortcuts, no accounting gimmicks. I’d just have to do the work, and that would take time.

Even a few percentage points off a mortgage is no small feat, especially toward the beginning of the term, when the majority of the mortgage payment goes to interest and not principal.

Based on my repayment schedule, it would be a few years before I’d make it to that point. Even paying a few hundred dollars extra each month, it would still take some time.

And each month, there would be that drip-drip-drip of a PMI payment.

Final decision

With two choices, a lot of uncertainty, and a fair amount of money riding on it, I made the call:

I would just pay down the damn loan.

There were two main reasons for this decision. The first is that I calculated that I could combine paying a little extra each month plus a one-time transfer from my savings (which I wrote about a few months ago) which would have me hitting the magical 80% mark at about the two year point, one year away.

The timing on that was perfect, because I didn’t really believe it when SunTrust said that I could remove PMI at any time. Especially when the criteria for removing PMI with an updated appraisal required a two year period.

The second reason is that, even if I had the assurance that my new property value would put me over the threshold, engaging with SunTrust in order to get one of their appraisers on the ground, dealing with all those logistics, was something I had zero interest in. I could feel my blood pressure rising just thinking about it.

So, for anyone who was hoping that I would describe navigating the process of getting a new appraisal, I apologize. I just didn’t think it was worth the hassle. Sometimes the least creative method is the most effective.

But it’s one thing to develop (and execute) a plan, and quite another to determine if it worked.

So it looks like this tale isn’t over yet.

But enough about me. What would you do in this position? Would you order a new appraisal, or just pay down the loan?