@David, Mortgage Insurance will certainly "go away" at 78% LTV. The Homeowners Protection Act (H.O.P.A.) which passed in 1998 in response to unethical practices with several mortgage insurance companies sets down the requirements that a MI company MUST comply with to remove mortgage insurance. Of course, they can require a current appraisal, no late payments in the past twelve months, a fee...ect.; however, they CANNOT refuse to remove the mortgage insurance if the property value is at 78% or lower. Prior to the passage of H.O.P.A., you are absolutely correct that many MI company's were completely inconsistent about the protocols for dropping the mortgage insurance. In fact, I often chastened LO's for promising borrowers that the lender would ABSOLUTELY remove the mortgage insurance at a specific time. ...It was totally inconsistent amoung both lenders and MI companies. H.O.P.A. is actually one the few legislative changes that has effectively assisted homeowners.
PMI does NOT automatically go away at 78% loan to value. PMI can go away if the lender agrees based on the buyer paying fees to reevaluate their PMI on the current market value or purchase price (whichever is LOWER). Plus, the buyer's payment history and credit score are factored into this decision. You should verify this process with your lender.
I think it is a great time to buy in Hoboken for someone looking to stay here for 5 years. The second answerer is right on how you should look at this, based on your actually monthly payment. Depending on your income you can deduct the interest on the second loan, and most likely NOT on PMI. So we will assume you get a 30% deduction on the loan for comparison, ok?
OPTION 1: PMI
360k loan $1,900 plus PMI of $162 for a total payment of $2,062 per month
OPTION 2: 80-10-10
360k loan of $1,900 plus 40k loan at 5.25% of $221 for an actual payment of $2,121 per month
LESS the additional $62 deduction you get on the second loan, your adjusted payment is $2,059
Obviously, verify these numbers and NOTE that interest rates might be lower right now. So if you qualify to deduct the interest Option 2 saves you $3 per month. If you take the 80-10-10 option how much principle would you pay off? About $3,240!
If you need any help in determining your current estimated market value, let me know.
David Paris, Realtor
Century 21 Innovative Realty