We're avoiding PMI (called MMI for FHA loans). For an FHA mortgage greater than 15 years and an LTV greater than 0.78, but less than 0.95, you have to pay MMI. We are between this area. MMI stops when you reach a LTV less than .78. Unfortunately, you must pay this MMI for a minimum of 5 years. This adds up to about $6k for 5 years for us. I don't know about you, but I don't like paying $6k for nothing.
For a mortgage that is 15 years or less, there is no MMI for any LTV less than 0.9. For this reason, we are going with a 15 year loan. There is still an up front cost on both mortgages, but no additional monthly payments for the 15 year. This loan requires higher payments, but we can swing it, and we're viewing it as a forced savings plan as the extra money is going toward principal.
As for the loan value, we are only taking out enough to pay off the refi fees and the credit cards. The back yard and HVAC stuff, will be paid out of pocket. I thought about pulling out more money, but I don't want to pay $7200 over the life of the loan for every $5k taken out now. Even if we have to use a credit cards for short term needs it is still a much cheaper solution that the $2200 in interest (per $5K) than the loan would provide.
It feels good to own a smaller home that doing a 15 year mortgage is even an option. While home values may still go down, there is security in knowing that we have enough home equity to be able to move without having to pay money out of pocket.
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