How to attack a PMI

[mrsggrowsveg]

I am less than a month away from paying off my high interest student loans.  After these are paid, we are going to start maxing out our retirement accounts.  There will be some extra money and we would like to pay off our PMI and refinance to a 15 year mortgage.  I called our mortgage company and they said that in order to get rid of the PMI, they can order an appraisal (we pay for) and if the mortgage is less than 80% of the house value than they will take off the PMI.  Another option that I thought of would be to save money for a new down payment and then refinance to a 15 year.  Is that a good option?  What would be the best way to get rid of the PMI?

[MrFrugalChicago]

You should be able to appraise it yourself based on what similar units in the area are selling for. Has the value gone up since you bought?

Approx what is mortgage for? Approx what have similar units near you sell for in the past 6 months?

See how close you are to the 80% LTV mark. If close, you could refi into a 15 year and have no PMI without putting money in. Otherwise you will need to put in a little money to get down to 80% LTV.

[Colgate_Toothpaste]

I was told the same thing- appraisal to determine if principal is at the 80% mark. 

Also, refinancing comes with a major cost.  I got my 30yr fixed rate mortgage at 3.625%.  I recently inquired about refinancing to a 15yr fixed, and found out that the 15yr rates are now exactly where my 30yr was.  I also found out that the fees associated with refinancing amounted to a years worth of mortgage payments towards principle at my current amortization schedule placement (the pay a lot, barely anything goes towards principle part.. haha)

Instead, I'm taking what would have been closing costs and just throwing them at my mortgage at the end of the year.

This really depends on where you are at on your mortgage (guessing about where I am), and what your previous interest rate is.  If there is a substantial difference between your current and 15yr interest rate, then go for it.  Otherwise, I'd just roll extra towards principal and get the same effect without the closing costs.

[MrFrugalChicago]

Also, refinancing comes with a major cost.  I got my 30yr fixed rate mortgage at 3.625%.  I recently inquired about refinancing to a 15yr fixed, and found out that the 15yr rates are now exactly where my 30yr was.  I also found out that the fees associated with refinancing amounted to a years worth of mortgage payments towards principle at my current amortization schedule placement (the pay a lot, barely anything goes towards principle part.. haha)

And of course there are advanced ways to refi.. you can often get a no-fee refi if you take a .125% interest hike.. so say your 30 year is at 4.5%, and you get offered a 15 year at 4.00%.. you can do the 15 year with a no cost refi at 4.125% and come out ahead (of course at the flexibility to make smaller mortgage payments in the future if something bad happened).

[Cinder]

Also, don't most loan companies 'automatically'* drop it when you reach 78% LTV?  IT may be cheaper to throw extra at it till you drop to 78% instead of paying fees to get it adjusted while you are at 80% LTV. 


* By automatically, I mean a month or so after you hit that point and when they manually review it. 

[RWD]

Also, don't most loan companies 'automatically'* drop it when you reach 78% LTV?  IT may be cheaper to throw extra at it till you drop to 78% instead of paying fees to get it adjusted while you are at 80% LTV. 


* By automatically, I mean a month or so after you hit that point and when they manually review it.

Depends on if it's an FHA loan and then when it was originated. For my FHA mortgage even though I'm well below the 78% LTV they will not drop PMI until the mortgage is at least five years old. I refinanced four years ago, so I have to wait. I believe for newer FHA mortgages you can't get rid of PMI without a refinance (this might be for the 30-year terms only).

[mrsggrowsveg]

Thanks for the responses.  There is no waiting period for dropping the PMI.  Our interest is 4.13 and the loan is for $158,000.  I don't think the value has gone up very much and the last appraisal was for $172,000.  I am not sure what it would be now.  There aren't really any comparable properties.

Cinder:  That would be great.  The mortgage guy didn't mention that on the phone so I'm not sure if it is a possibility.

[MrFrugalChicago]

Thanks for the responses.  There is no waiting period for dropping the PMI.  Our interest is 4.13 and the loan is for $158,000.  I don't think the value has gone up very much and the last appraisal was for $172,000.  I am not sure what it would be now.  There aren't really any comparable properties.

Cinder:  That would be great.  The mortgage guy didn't mention that on the phone so I'm not sure if it is a possibility.

Okay so you would need to chip in about $20,400 to get of PMI...

[isbjshaffer]

Also, don't most loan companies 'automatically'* drop it when you reach 78% LTV?  IT may be cheaper to throw extra at it till you drop to 78% instead of paying fees to get it adjusted while you are at 80% LTV. 


* By automatically, I mean a month or so after you hit that point and when they manually review it.

Depends on if it's an FHA loan and then when it was originated. For my FHA mortgage even though I'm well below the 78% LTV they will not drop PMI until the mortgage is at least five years old. I refinanced four years ago, so I have to wait. I believe for newer FHA mortgages you can't get rid of PMI without a refinance (this might be for the 30-year terms only).

We had an FHA Loan that we used to purchase a foreclosure. We used Billy Schneider @ Quicken Loans and we're closing on our refinance this week. Quicken actually paid for a large part of our appraisal - we were only responsible for $175. We bought the house for 100k almost two years ago with a very small down payment so we had PMI. We knew the house was worth more so we agreed to it and figured at worst, if it came in high enough we could just sell. Our previous loan company also said that we had to wait 5 years no matter what - you get around that by doing a refinance. It came in at 145k and we're easily able to do the refinance and drop the PMI. We're actually rolling in my 19k of student loans too. We took a higher interest rate in exchange for lower closing costs bc we don't anticipate being in this house for very long. It was an investment move.

One thing Billy was able to explain -most people cringe at higher interest rates, but if you count your PMI as "interest" (money not going toward principle) our effective interest rate was more like 5.1%, not the 3.25 that was on our loan. And the effective interest rate including the student loans was even higher, @ 6.1%.

Now that the loans are rolled in (and we took a higher interest rate) our effective interest rate will be 5.3% but our closing costs are minimal - $430. The higher interest rate you choose, the lower your closing costs so you need to figure out what makes sense for you as far as determining at what point a lower interest rate will be worth the higher closing costs, which will be added to the loan.

Our previous mortgage payment was about $803/mo + $230 in student loan payments - Now it will be $868 including the higher interest rate and 19k of student loans - freeing up a good bit of our cash flow!

Hope this helps!