Author Topic: Mortgage refinance with new PMI laws  (Read 3522 times)

MC

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Mortgage refinance with new PMI laws
« on: September 06, 2012, 07:49:38 AM »
Okay, so my wife and I did an Anti-Mustachian thing and bought a home with a 5% down FHA (about 2 years ago).  In my defense, I did not find this blog until a few months ago, and only now recognize the error of our ways... 

Anyway, the reason for this post is a question about PMI rules/laws.  I recently attempted to refinance our 5% Interest rate mortgage.  The problem that I ran into, is apparently PMI changes that went into affect in April 2012 (?) require a higher per month PMI payment.  So, even though refinancing would've saved us about $400/month, the additional PMI costs would've been an additional $300, and with an FHA loan, you can't refinance if there is not a 5% or greater savings (if I'm remember correctly).

I know that one way to combat this is to pay down our mortgage to the point where PMI goes away, and then refinance.  Of course, the risk here is that interest rates could go back up by the time we pay it down that far.  Has anyone else run into this, and are there any other avenues we should pursue, or just focus on bring down the principle?

Appreciate any input.

velocistar237

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Re: Mortgage refinance with new PMI laws
« Reply #1 on: September 06, 2012, 08:24:17 AM »
Definitely focus on bringing the principal down. It's equivalent to medium-interest debt.

http://www.westga.edu/~bquest/1997/costof.html

You could take a middle road where you pay down a bit and then refinance. With more equity, the PMI amount will go down. The appraisal could go either way, though, and you could end up with higher or lower PMI. Take a look at comps before you refinance.

tooqk4u22

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Re: Mortgage refinance with new PMI laws
« Reply #2 on: September 06, 2012, 02:32:17 PM »
Yes PMI rates went up and I thought the new rules require that PMI stays in place for five years regardless if you pay it down so you have to refi to get out of it before then.

Definitely focus on bringing the principal down. It's equivalent to medium-interest debt.

That said this quote is how to look at it, which most people don't, and you people should focus on the imputed rate that results because of PMI and I have found that it typically equates to about 9-10% on the loan portion that is above 80% LTV.