Author Topic: Mortgage: Refinance? Sit as is and wait out PMI/FHA?  (Read 3118 times)

Tami1982

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Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« on: February 02, 2015, 11:54:43 AM »
I think I have thought all this through, but I would like to make sure I am not missing anything.  I've been reevaluating all expenditures again and have been able to lower bills I thought were immutable through discounts so I thought I would take a crack at the mortgage.

History:
7/30/2012 I bought my house for $67,000.  I have a 30 year FHA with 5 year FHA insurance @ 3.25%.
2/02/2015 Balance is now $60,000.  However, home value has gone up a lot.  I don't actually have an appraisal, but based on local sales and Zillow ($116,000) I am guessing it's worth $85,000 - $90,000.  At a minimum I'm over the 78% LTV. 

With FHA you are required to pay the FHA mortgage insurance (a version of PMI) for five years.  I know, I'm lucky I got in before they became LIFE OF THE LOAN.  According to the bank, I cannot ask for the FHA PMI to be removed based on current value as it is only based on value when purchased (according to a letter and an email that I asked to verify).  My balance would need to be  under $53,000 by 7/30/17 for the FHA to be removed.  The FHA is about $70 a month, roughly $2,400 OOP going to nothing from now until 7/30/17.

I am working to pay off other debt (car loan, student loan) right now and am hoping to be free of both of those within 2 years.  Leaving me with 6 months to pay as much to the house as possible to ensure it's below that $53,000.  Worst case scenario I end up paying it a couple extra months. 

I just don't believe I can refinance into a better deal.  Am I wrong?  Just want to double check my work. 

« Last Edit: February 02, 2015, 12:03:28 PM by Tami1982 »

JLee

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #1 on: February 02, 2015, 12:25:27 PM »
Estimating ~$400 for an appraisal, you'd have to have all of your loan/closing costs under $2k to make it any cheaper. What rates would you be able to get and how much would your closing costs be?

jda1984

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #2 on: February 02, 2015, 12:30:00 PM »
As JLee said, you'll probably come close to break even with the closing costs. 

One alternative might be to see if your bank would do a "streamlined" refinance.  Our current mortgage servicer (US Bank) did one for us two years ago and lowered the rate and the term with no closing costs (or basically built into the rate).  I don't fully understand the reasoning behind it (maybe they figure you're looking anyway and buying the servicing is more expensive than the loan paperwork?) but ours went through no problem and didn't require an appraisal.  I think we needed to have 80% LTV of some agreed upon valuation (US Bank is pretty active in our area, so they have a pretty good stock of what the market is).  There is also a prepayment penalty for the first 3 years (ours is a one time fee of $500 if paid off/refinanced within 3 years).  Also, we don't have to escrow taxes and insurance so that's a small win as well.

Tami1982

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #3 on: February 12, 2015, 09:36:50 AM »
After further research it looks like the interest rate would be the same or higher, and that with closing I might just break even.  Better to wait it out I think.  Boo, I say!  But it seems like the best option.  Further contact with the bank yielded nothing:(

MetalCap

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #4 on: February 12, 2015, 10:27:10 AM »
I refinanced late last year, I stayed with my bank and they gave me a lower rate to stay with them.  They also rolled in the closing costs so all I paid for was the appraisal.  It does reset the 30 yr term but I'm not worried about that as I will have it paid off within 4 years.

I'd go through the free application and see what they give you before giving up.  Eliminating PMI can make a big difference over time.

Drifterrider

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #5 on: February 25, 2015, 12:13:41 PM »
Have you considered asking if you can pay it all off now (the PMI) at current value of future payments?  All they can do is say "No".

Tami1982

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #6 on: February 27, 2015, 01:06:03 PM »
Have you considered asking if you can pay it all off now (the PMI) at current value of future payments?  All they can do is say "No".


I don't understand.  I don't think that's a thing?  I'm sure they are hoping that I don't pay the value of the home loan down by the five year mark so I have to keep paying their version of PMI.  I don't see any advantage for them?  With the loan market the way it is, it seems that my best option is to just keep paying the loan, and make sure I'm under the $53,000 balance at the five year mark - 7/17.  I just got my last statement. Under $60,000!  $59,956:) 

I refinanced late last year, I stayed with my bank and they gave me a lower rate to stay with them.  They also rolled in the closing costs so all I paid for was the appraisal.  It does reset the 30 yr term but I'm not worried about that as I will have it paid off within 4 years.

I'd go through the free application and see what they give you before giving up.  Eliminating PMI can make a big difference over time.

I spoke with the bank. They said there is nothing they can offer me at this point:(  I also found out I cannot refinance the loan until after the 5 year mark or I am on the hook for a $5,000 grant they gave me.  I guess I have to keep the loan until the grant is dismissed or I then owe it.  All in all, just keep paying principle payments and get it to the $53,000 mark seems to be the best option.

Drifterrider

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Re: Mortgage: Refinance? Sit as is and wait out PMI/FHA?
« Reply #7 on: March 16, 2015, 01:17:36 PM »
Private Mortgage Insurance (PMI) is really just extra interest.

Present Value of Future Payments.  Ever see the commercials about "It's my money and I want it now! [JG Wentworth])?  Think about that in reverse.

FHA wants $70 per month for 60 months:  total of all payments = $4,200.

The present value of future payments is the $4,200 deflated to today's value.  I don't have my calculator but you can find one on Google.  It will show you what it would cost in today's dollars if you could pay off the PMI in full, now.

Some institutions will accept a discounted payment now but others will not because they are going to make more interest off you the longer it takes you to pay the balance.