Hi Everyone! I'm hoping you all can provide some advice in a current financial crossroads that my husband and I are facing. Ever since we started reading MMM about a year ago we have been making changes to our lives to become FI. A major hurdle for us has been our student loans. We went to an expensive school and up until recently, neither of us have actually been using our degree. We have $40,000 in student loans.
Fortunately, we purchased a foreclosure in December 2012 for $97,000. Zillow currently has the home priced at $152,000 and we now owe $94,000 on it. So not even two years later we have nearly $60,000 in equity in the home. Our payment on the home does include PMI, which we hate of course, but the mortgage company will not consider letting us out early even due to the amount of equity in the home until it's been 5 years or 78%.
Our crossroads is this - Should we refinance the house to try to pay off some of the student loans and rid ourselves of the PMI? Or should we just refinance to get out of the PMI and not take cash out for the student loans? Or not refinance at all? Or could we be better off selling the house?
My husband's half of the loans are the easiest to deal with. His interest rates are from 1-2%. My half ranges anywhere from 4-7%
We are having an appraiser come out to the house this week to give us a better idea of what the house is worth. From there, we may have a better idea of what direction to take either with refinancing, doing nothing but making larger payments or selling, but I wanted to ask you all if you think there is some glaring issue that we are missing with any of this.
Our current interest rate on a 30 year loan is 3.25% however, if you include the $100 of PMI per month as interest (since it's not going toward principal), our "effective interest rate" is much closer to 5%. The refinance we're considering, assuming the house comes in for at least $140,000, would put us at a 4.99% interest rate. The way the guy at Quicken explained it was that since we are not planning on living here more than 3-5 years, there's no sense in paying the higher closing costs for a lower interest rate. Our payment would still be the same and we could "pay off" as much as $12,000 of the student loans with the $2,000-$3,000 in closing costs being added to the loan.
BTW, this is our only "debt emergency" but we feel it's crucial before we can continue on our Mustachian journey. Please let me know if I've forgotten any info and I look forward to hearing from you!