Justin has a question. He says, "Once you are hitting 25 percent, how does prepaying the mortgage to get rid of PMI get factored in from a maximization standpoint? It's not feeling wise. What do you think?"
"Well, okay. So the question is, how, once you've saved 25 percent, how does prepaying the mortgage to get rid of PMI—getting rid of PMI specifically, and to be fair, like some people say you have to put 20 percent down because of the PMI—right? So what do you... I think it was a period. It wasn't... Here's what's so beautiful about, you know, money. It's nothing more than a tool to allow you to accomplish the goals you want to achieve. And so what you have to define for yourself is, okay, what are my goals? Maybe one of your goals is to not have PMI because you think it's a waste and it's not something you want to spend money on. And if that's a higher priority goal than some of the other goals that you have, there's nothing wrong with pursuing that because once you get to 25 percent savings, you get to choose what you do with your dollars and how you do it. So you have to make an opportunity cost assessment. Is it more advantageous for me to put one dollar on the mortgage, save that interest, lower, be potentially able to get rid of PMI? Or based on my age and my market expectations, do I think I could take that one dollar and go deploy it somewhere else? What's beautiful is, above the 25 percent threshold, you get to choose. It is much less that you need to do this, you need to do this, you need to do this. You really get to choose based on what your goals are."
"Now, if you're thinking about optimal strategy, one of the things that we tell folks often, depending on where your mortgage interest rate is, I would run some mathematics around, okay, based on my interest rate, is it more advantageous to deploy the dollars at the mortgage? Or what if I put together some dollar-cost averaging strategy where I'm just going to go buy a low-cost Index Fund or a low-cost Target retirement fund with the dollars I was going to prepay on the mortgage? And if I do that for the next four, five, six, seven years, is there a chance that those dollars will actually accumulate more than the debt I would have paid down, plus the interest that I would have paid? There may be an arbitrage situation in there. Well, one day, you can just write a check to your mortgage, refinance it, whatever, get rid of the PMI, and you'll have done it more efficiently than if you would have just paid on the mortgage the entire time. Thoughts?"
"I know. I love the way you just laid that out because I was sitting here thinking about how this ties into what other variables are in play as well. Because I do think it's one of those things. There's a reason with the financial order of operations, I love it. If he's already at 25 percent now, Justin, look, your goals matter. That's why we do have the 'know your number' so that we know if you need to be saving 30, 35, 40... Really, the big driver that is if you think you're leaving the workforce, you know, 50 or under. But if you're doing a normal retirement, that 25 is supposed to be a liberation point. There's a reason we call it 'abundance.' You're living in abundance now, so you get to do things on your terms, how you want to do them. And if it's a big deal to pay off the PMI, let's do it. But let's also not skip the other variables that impact this."
"Well, here's the thing I'm thinking about. We just came out of an appreciation period where I just saw like the real estate market in the State of Florida is flat right now. However, still, the majority of houses are up 50 percent over the last three years. Yeah. So it's... So it's one of those things where I just... I would reach out to your mortgage company, find out if they have a restatement process that allows you to essentially, you know, if the... If the house has appreciated enough, a lot... Some... There are sometimes opportunities where you just pay the two or three hundred dollar processing fee, and then they say, 'Yep, you know what? Your house is worth so much now, we don't need to collect PMI anymore. You're in a good place.' They still figure out how they can collect a few hundred dollars for you to do that. But you ought to at least call to see if that's an option. And maybe there's a balance between the two because maybe they say, 'Man, your house has appreciated. Looks like your house is up, um, you know, a good six to ten percent.' But it's not enough. But you but say, 'But you know what? If you could stroke us a ten thousand dollar check, plus what your house has appreciated, we can wipe this out.' So there might be a solution exactly what Bo was talking about. But you got to know the other variables, how is the market value impacted. Make a call to your mortgage company, get that process so you know all your variables, and then, let's... Let's make this happen because if you have a normal retirement age, I understand that even if it's a deductible expense, still feels like it's a wasted expense because you're paying a fee for something that's unnecessary. Let's get it taken care of. But just make sure you've done your homework, know all the variables, and then you also know how it fits into your personal 'financial order of operations
' so that your 'financial order of operations
' is also still being maximized and respected."