What is Better: take a Second Loan or Pay PMI?

When you take out your home mortgage loan, you might want to consider taking out an 80/15 loan in order to avoid PMI. By going this route, you could potentially save a great deal of money, though your upfront costs may be a bit more.

Pretend the home you are interested in purchasing has a value of $300,000.00 and you are prepared to put down $30,000.00 as a down payment. With a standard 30 year loan with an interest rate of 5.000% and 1.000 point(s), you will have to pay $33,900.00 up front for closing and would have a monthly payment of $1,561.92. In the end, you will have paid $530,559.60 toward your home.

If you opt for an 80/15 loan, you can avoid making PMI payments altogether. Because it involves taking out two loans, however, you will have to pay a bit more in upfront costs. In this scenario, that amounts to $35,600.00.

Your monthly payments, however, will be slightly LESS at $1,469.20.

And, in the end, you will have paid only $483,338.57 – that’s a total SAVINGS of $47,221.03!