Freed by 50

I have a dirty little secret that makes me so angry with myself:  I’m paying $195/month in PMI.  I’ve been paying this nonsense for almost four years.  That means by this October, I’ll have paid $9360 in vapor.  Nine thousand, three hundred and sixty dollars just thrown into the void.  All because we had to move before we were ready.

According to my mortgage company, I have to continue to pay PMI for ten years or until I have 20% equity in my house.  Equity, what subjective nonsense.  Here’s a funny story about equity and home values…My house was listed for $425k and my wife and I bought it for $418k.  The bank appraised the house at $430k and we put 5% down because this is New York and we had to pay an additional $20,000 in closing, moving and other costs, including a $5300 “donation” to a conservation fund just for the privilege of living in our town.

After the closing, the previous owners of the house told us that they had received multiple higher offers on the home, but decided to sell to us at a lower price because they liked us.  Yay us.  But here’s the kicker; those offers went as high as $435k, and the banks backing those offers had appraised the house at $440k!  Wait, what?  Somehow the same house was suddenly worth $10,000 more for absolutely no reason.  Funny.

Shortly after moving in, the town needed money for its ailing school districts, and since NY had instituted a cap on the amount of money school districts can ask for in budget increases, they pulled an end around and just reassessed all of the houses in town for higher values.  This allowed them to collect more in property taxes, 62% of which go to the schools.  Suddenly my house was valued at $460k.  Shit, I should sell!

According to appraisals, I had gone from 5% to 14% equity in just two years.  Then we had solar installed.  The power company, state of NY and federal government all agreed that the solar installation was worth $28,000.  Conservatively valuing this improvement to the house at 50%, and with two years of principal reduction on my loan, I called the bank and asked them to remove PMI from my loan.  They laughed at me.

“It’s only been two years!”  The woman on the line said.  “Just because the town said the house is worth $460k doesn’t mean that’s the value of the house.  They use a different appraisal system than banks do.”  (Seriously, banks will tell you that the town just makes up home values in order to tax you at whatever rate they feel they need).

I said I wanted to roll the dice and see if I could still have the PMI removed.  But here’s the catch: The only ways to have PMI removed early is A- for my mortgage company’s appraiser to value the house at a high enough price that I wind up with 20% equity in the home, B- I pay down the principal enough that I have 20% of the original sale price, or C- I pay the bank $15,000 to pre-pay the remaining years of PMI.  Choice A means I have to pay the bank $500 to have their appraiser look at my house.  Since the appraiser works for the bank, there is little reason for them to ever say my house is worth enough to remove PMI.  Choice B means I have to lower my principal to $335k, which would require a $35k payment from me to do so.  Choice C is just laughable and since I’m not a stupid idiot, I wont even entertain the idea.

I chickened out.  I have sat on the PMI problem for two years.  I’m told my house has appreciated in value and I have completed several more upgrades in the meantime, the most important of which being central air.  I’m left with two choices, either I continue to pay PMI for years to come, throwing money into the abyss each month, or I pay the fee, get the appraisal and hope for the best.

What would you do?