Author Topic: Refinance Car to elminate PMI on mortgage  (Read 2744 times)

Neustache

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Refinance Car to elminate PMI on mortgage
« on: January 28, 2015, 07:55:23 AM »
Slight spin on another poster's question.

We currently have two paid-for Nissan Versas, both worth about 10K.

Our mortgage currently has PMI.  I had good reasons to get rid of the car payments, because I was worried about cash flow and the payments were high since I did very short terms initially.  I wanted those payments gone ASAP so our budget had space.

But now I'm considering refinancing one of them, and taking the cash to apply to our mortgage to eliminate PMI.  I need about 10K (one car) to eliminate the PMI on our mortgage.

Costs of refi:  $15

PMI being charged monthly:  $51

Interest rate of mortgage:  4.25%

Interest rate of car loan:  2.99%

72 month term payment:  $151.89

Difference in monthly cash flow (151 -51):  $100


Our PMI gets dropped automatically when we hit 80%.  It's a conventional loan. 


Thoughts? 

I have a knee jerk reaction against having car loans, but this seems like a good way to stop getting charged for PMI quickly. 

Alternately, we pay down the mortgage, but I also have foundation repairs ($$$$) to make so a big mortgage payoff without pulling cash out of a car is not going to happen for 5 months or so.




Gone Fishing

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Re: Refinance Car to elminate PMI on mortgage
« Reply #1 on: January 28, 2015, 08:14:48 AM »
Sweet! Do it!  The only "loss" in this senario is a little mortgage interest deduction if you itemize and the lower rate on the car loan will take care of that. Don't forget the additonal principal paydown on the mortgage you will get as well since less is going to interest.  It almost always makes sense to pay down a mortgage in one wack to get rid of PMI.  Doing it over time results in a ridiculous effective rate as you approach the 80% mark.

TheMoneyBadger

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Re: Refinance Car to elminate PMI on mortgage
« Reply #2 on: January 28, 2015, 08:48:42 AM »
Just be sure that you know the rules for your mortgage and PMI.  When we tried to drop PMI I found that it wasn't as simple as I thought it would be.  This is what happened to us:

We paid the mortgage down to 80%.  When we called Bank of America they told us that we'd have to pay for an appraisal to make sure the house was still worth what we bought it for.  They said that when we paid it down to 78% it would automatically drop.  We paid it down to 78% rather than pay for the appraisal.  We requested the PMI be removed again.  They told us that we'd need an appraisal.  We told them what we had been told and they said that our mortgage terms indicate that it will be automatically be removed when our original amortization schedule brought us to 78%.  Since we had accelerated our payments, that would be a couple years down the line.  In the end, we got the appraisal, had to pay a bit more to get to 80% after our home value dropped a bit, and finally removed PMI.

Long story short, at least some banks may require an appraisal which they'll charge you for.  If you don't make value, you may not get the PMI approved.  Your mortgage may not be in that boat but then again, I didn't think ours was either based on my initial conversations with BoA.

frugaliknowit

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Re: Refinance Car to elminate PMI on mortgage
« Reply #3 on: January 28, 2015, 09:06:59 AM »
Echo other posts, plus:

I would do nothing until you have your arms wrapped around the foundation repair.  There could be "skeletons in the closet" if you are having structural issues with your house and could get in a cash or credit pinch.  If you refi the car, pay down the mortgage, then find your repairs are substantially more than you planned for, you might be "painted into a corner".

Neustache

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Re: Refinance Car to elminate PMI on mortgage
« Reply #4 on: January 28, 2015, 09:25:32 AM »
Foundation repairs:  we've had the structural engineer out here twice - we have a decent handle on repair costs.   But yes...it can get pricey!  We are looking at around 10K (OUCH)

PMI - Yep, already verified.  We bank with a credit union, and this is our 2nd time with a mortgage with them.  The first they dropped the PMI without me even contacting them.  I did call and verify that my understanding is correct.  No appraisal necessary!


But yes, I might wait until the repairs are done to do this, just so I absolutely know what the total is.  We are hopefully moving forward with repairs by end of February. 


JLee

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Re: Refinance Car to elminate PMI on mortgage
« Reply #5 on: January 28, 2015, 09:28:09 AM »
Just be sure that you know the rules for your mortgage and PMI.  When we tried to drop PMI I found that it wasn't as simple as I thought it would be.  This is what happened to us:

We paid the mortgage down to 80%.  When we called Bank of America they told us that we'd have to pay for an appraisal to make sure the house was still worth what we bought it for.  They said that when we paid it down to 78% it would automatically drop.  We paid it down to 78% rather than pay for the appraisal.  We requested the PMI be removed again.  They told us that we'd need an appraisal.  We told them what we had been told and they said that our mortgage terms indicate that it will be automatically be removed when our original amortization schedule brought us to 78%.  Since we had accelerated our payments, that would be a couple years down the line.  In the end, we got the appraisal, had to pay a bit more to get to 80% after our home value dropped a bit, and finally removed PMI.

Long story short, at least some banks may require an appraisal which they'll charge you for.  If you don't make value, you may not get the PMI approved.  Your mortgage may not be in that boat but then again, I didn't think ours was either based on my initial conversations with BoA.
Oh, ouch. So basically you had to pay ~$400 extra to avoid paying PMI?

So if you home value went up enough, could you theoretically get an appraisal and remove PMI without paying the loan down to 80%?

Freedom2016

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Re: Refinance Car to elminate PMI on mortgage
« Reply #6 on: January 28, 2015, 09:45:31 AM »

So if you home value went up enough, could you theoretically get an appraisal and remove PMI without paying the loan down to 80%?

Theoretically, yes. We had an appraisal to drop PMI last year, and our property had increased in value by $20,000, reducing (but not eliminating) the amount we had to pay it down to reach the PMI removal threshold.

TheMoneyBadger

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Re: Refinance Car to elminate PMI on mortgage
« Reply #7 on: January 28, 2015, 01:23:47 PM »
Just be sure that you know the rules for your mortgage and PMI.  When we tried to drop PMI I found that it wasn't as simple as I thought it would be.  This is what happened to us:

We paid the mortgage down to 80%.  When we called Bank of America they told us that we'd have to pay for an appraisal to make sure the house was still worth what we bought it for.  They said that when we paid it down to 78% it would automatically drop.  We paid it down to 78% rather than pay for the appraisal.  We requested the PMI be removed again.  They told us that we'd need an appraisal.  We told them what we had been told and they said that our mortgage terms indicate that it will be automatically be removed when our original amortization schedule brought us to 78%.  Since we had accelerated our payments, that would be a couple years down the line.  In the end, we got the appraisal, had to pay a bit more to get to 80% after our home value dropped a bit, and finally removed PMI.

Long story short, at least some banks may require an appraisal which they'll charge you for.  If you don't make value, you may not get the PMI approved.  Your mortgage may not be in that boat but then again, I didn't think ours was either based on my initial conversations with BoA.
Oh, ouch. So basically you had to pay ~$400 extra to avoid paying PMI?

So if you home value went up enough, could you theoretically get an appraisal and remove PMI without paying the loan down to 80%?

Yep, that's exactly what happened.  If the appraisal had shown that our LTV was 80% or below we could have removed it without paying it down at all.  What it actually showed was that the value had dropped a bit so we had to pay a little more to get to 80%.  Doing it was still financially worthwhile but it took a few months to recoup the cost of the appraisal in saved PMI premiums.