We pay $250 a month in private mortgage insurance, and will continue to do so for eight more years until we hit 78% of our mortgage. Our interest is 4.75%. We don’t have any savings, but we are very secure in our jobs with good life insurance. We are both very likely to have salary increases steadily for the next few years. I will receive an inheritance. Do I put it all towards my mortgage principal or do I set some aside as emergency savings?
Once you have 3-6 months of living expenses in a savings account, definitely start paying down your mortgage to get out of the PMI phase. If you call the bank when you get to 80%, most will eliminate the PMI at that point. Good luck
You don’t say how long ago you took out your mortgage, or how much you owe. Given your stable employment situation, you may want to consider refinancing your loan. At 4.75%, your loan is likely a few years old. During that time, interest rates have gone down and, in many areas (Like Boston), real estate values have gone up. By refinancing, you will lower your rate considerably, and probably eliminate the $250 PMI premium. This should free up hundreds of dollars each month that you should then take advantage of by using it to add to your savings. After all, you have been able to meet your expenses while making the payments currently, so by freeing up this cash flow, you will greatly accelerate your wealth building opportunities.
A word or two of caution; don’t use the extra money to shorten your mortgage repayment period by accelerating or making additional payments of principal.
As far as the inheritance, do not use it to pay off the mortgage! These kinds of capital infusion, like an inheritance, should be invested for your future. It is easily spent as the majority of inheritances are spent in less than 90 days.
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