I will have to get to my post about gambling tomorrow. I came across an article on pmi that begs my attention, especially since that's what I was talking about. It's also about our best buddies in media.
"Santa Cruz, a consultant for a biotech company, said he and his wife Michelle were happy to sign up for PMI, which will cost them $150 a month, because it allowed them to get the kind of mortgage they wanted."
What kind of mortgage did they want? A no money down mortgage. I have no problem with that but it plays into this article so I thought you should know.
The other option offered to them was an 80/10/10. We've talked about 80/20 loans and this is similar. For those that don't know, you get a mortgage loan for 80%, a down payment loan for 10% which usually carries and interest rate of 2% higher than the mortgage, and you pay 10% down in cash.
The Cruz's didn't have the 10% for their 4 bedroom, 2 bath, with a large yard, house. It doesn't say what the price was so I'm just going to assign a value of $250,000 for this post. The median price for a house in Tucson a couple of years ago was $200,000. If their PMI rate is around 1% (it generally varies between .9% and 1.9%), then I'm pretty close to the mark since their PMI payment is $150. I'm also going to give the Cruz's an interest rate of 6% for their mortgage. I'm nice that way.
There's the background. Let's talk about this quote and this article.
The first thing that struck me about this articles was the fact that the Cruz's were happy to pay an extra 150 bucks a month on their mortgage payment.
What the hell kind of brainwashing has happened here? I'm paying PMI. About $90 a month. I knew that was part of the deal to rush into buying a house. We talked about renting but I wanted to take a chance (tomorrow's post) and so we bought a house and agreed to pay PMI. I understood my options and picked. Not once have I felt happy about paying PMI. I think I have been very clear on my feelings on PMI.
Do you remember the movie The Last Boy Scout? Bruce Willis catches his buddy sleeping with his wife. They go outside and Bruce says, "Head or gut, Mike?" Mike has to choose whether Bruce punches him in the face or in the stomach. He doesn't have a choice not to be punched. He just gets to pick the target. Mike picked and I don't recall anyone saying, "Mike was happy to pick because it meant that he got the kind of punch that he wanted."
Mike could have chosen not to sleep with Bruce's wife and could have avoided the punch. People can choose to save up 20% for a down payment and avoid the punch from the bank.
For people like me who won't wait, I take the punch but I don't feel like the bank has done me any favors. It annoys the hell out of me that articles like this just to make paying fees to banks or credit card companies is a good thing.
I'm not sold on the reasoning behind PMI either. It's supposed to cover any cost of foreclosure action if the buyer defaults on the mortgage. Using our example numbers, the Cruz's are going to be paying over $16,000 a year in interest for the first few years. Just exactly how expensive is foreclosure?
"Here's an idea: Why don't you give me half the money you were gonna bet, then we'll go out back, I'll kick you in the nuts, and we'll call it a day!" - Vegas Vacation
For some lead in information for tomorrow's post, be sure to read the Chronicles post later today.