Could really use your help on this one MMM and MMM family: I'm in an interesting spot with my home loan and I had some questions that Google, despite all its wisdom, couldn't completely help me with. I know mustachians are always eager to lend a handlebar, so here goes:
I currently live in a house I purchased for 280,000. It has an FHA loan with a remaining principle of 262k and an interest rate of 5.5%. I am currently in the process of getting an FHA streamline to get down to 3.75%, but I have an interesting dilemma. The home was purchased in the summer of 2009, which, for reasons unknown to me, allowed us to have a lower monthly insurance premium (somewhere in the neighborhood of 150 per month). It seems that now if you are refinancing, and the paperwork for your home went in AFTER June 09, you can't keep your old PMI rate. So if we refinance from 5.5% down to 3.75% our payment will go from 1966 per month, to 1780 or thereabouts per month. Now that's still savings and that's great, but there are some things that worry me.
To get out of paying MI with FHA loans you need to have a 78% LTV and it has to be based on the original purchase price, you arent allowed to use appreciation to get the new value (not that it's gone up at all, but just a note). Now, the actual payment without the mortgage insurance will be in the 1300 range if we refi, but when you refi through FHA streamline, you are locked in to pay the PMI for 60 months. So that's 5 years of paying $400+ for mortgage insurance. Assuming I have to pay the insurance for the full 5 years, that will be at least $24,000 down the toilet.
Ok, now the actual questions. I have a roth IRA with ~40k in it. How can I use this money, and SHOULD I use this money, to pay down the principal BEFORE the refi to remove the insurance? Keep in mind it's an IRA and I will take a 10% bite on the whole 40k as it hasn't been enough time for me to avoid penalties on any of the money (unless I can somehow credit this cash toward buying my first home since I'm technically still in my first home?) Also, if I do this ReFi now, and in a year (the minimum amount of time before refinancing is allowed) a. house appreciates to give me an LTV of under 78% can I refinance again to a conventional loan and remove the insurance or am I locked into that insurance even if I refi? am I allowed to refi before the 5 year period ends?
Also, how hard is it to take out a HELOC as a safety net, because if I use this money and then somehow desperately need it, I would be disappointed if I couldn't tap that equity. Hope there are some financial wizards out there who can help me out because I'd really like to save 24k over the next 5 years. So, 40k investment in the home, nets me 24k over 5 years, minus 4k for the tax penalty = 20k over 5 years, = $4,000 per year, or 10% annualized, plus frees up future cash flow for myself. Seems pretty complex with lots of different layers though, hope you guys can help.