[quote=SD Realtor]One simulation I would run would be to consider borrowing from the 401k to eliminate the PMI. The calculation is trivial, essentially add up the PMI and the differential in interest and then consider if you would be able to match that return for the amount of time it would take you to be able to remove the pmi. I know that the time period is somewhat arbitrary however (and this is personal) I cannot stand giving away money. PMI alone is 4800 a year by your calculation above so in 10 years you are close to 50k. Similarly with 20% down your origination costs will be less so you need to add that in as well. Add in the smaller amount of interest you will pay over (pick what is less, the life of the loan or the length of time before you sell the home)and it may be an eye-opener for you.
Now if you are the type of person that will walk away from the home should it depreciate or something like that, then disregard what I said and go 3.5% FHA. If not then running a simulation of what I proposed above may be useful unless you feel you will be making a substantially better return on the 401k.
Just food for thought.[/quote]
Excellent idea, SD R! Thanks. Yes, it is the risk of having to pay back 401k though within 3 months of leaving your job that kind of stops us. I also loathe the idea of paying PMI, though I understand the necessity. It seems that with my wife’s 401k (actually 403b for UCSD, same thing)loan you can keep paying even if you change jobs. I’d still keep around in cash the amount equal with whatever I borrow from my 401k, just for such cases. (we have equal amounts both in her 403b and my 401k). Not likely we will both lose jobs. If that happens, for a longer time, well, we might have to walk. But no, we are not walking away if we can make the payments, regardless of depreciation.
