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THE SCENARIO
Primary Mortgage Insurance, or PMI, is a type of insurance that makes it more expensive to buy a house if you don't have a big enough down payment. Even if you get a really good rate on your mortgage, PMI can increase the effective rate to the point where maybe it's not so great anymore.
The question: If I borrow $365,000 to buy a house with a 30-year, fully amortizing mortgage at 3.5% interest (this rate was available in the 2012 - 2013 time frame), and PMI increases my payment by $300 per month, what's my effective rate* on my mortgage?
* Here, I'm only talking 'effective rate' in terms of the payment I have to make each month, not the rate of amortization, which is ...
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