Author Topic: Refi - this is good, right?  (Read 5215 times)

goblue

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Refi - this is good, right?
« on: November 08, 2012, 07:27:44 PM »
I am looking into refinancing our mortgage, and I think this is good, but maybe I am just happy to see the percent go down. Set me straight.

Our current mortgage is at 5.125% 30yr FHA., we have had since 1/10.

Refi would give us 3.75% 30yr FHA, however, our pmi will double.

Our closing costs are $700.

Per numbers given to me, overall savings of $86/month even after including pmi increases (which to me doesn't quite make sense...)

I'm not sure if this is a no brainer, or if something is too good to be true. Pinch me.

Another Reader

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Re: Refi - this is good, right?
« Reply #1 on: November 08, 2012, 07:33:13 PM »
What is your current loan to value ratio?  If you have substantial equity or can pay the mortgage down, you can get a better rate and not pay the usurious FHA MI. 

EJ

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Re: Refi - this is good, right?
« Reply #2 on: November 08, 2012, 10:06:57 PM »
They need to reduce your total pymt by >5% in order to do an fha streamline refi.  with the decrease in rate, it is not surprising that the savings is $86/month even with the PMI doubling.

I went through this same situation two months ago - however, I was able to find a 30 year conventional 90% LTV loan product that completely eliminated PMI and saved approx $350/month.  Do you have any equity in your home?  You need to look in to this tomorrow - eliminate that PMI ASAP.

goblue

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Re: Refi - this is good, right?
« Reply #3 on: November 09, 2012, 06:47:02 AM »
I wish I could say we could refinance to a conventional 30 yr, but we are not able to because 1. we do not have enough equity in the house, even though we pay $100 extra a month on the principal, and 2. we don't have enough to pay down to 20% plus closing costs. I don't want to blame housing prices but that is also a factor.

We are not planning on moving really ever, maybe in retirement 30 yrs from now, so I guess I feel the need to lock in the 3.75% rate and not worry about the pmi right now since we would still be decreasing our payments.

Our mortgage is the one big financial miss I feel we made. We do pretty good saving for retirement/emergency funds/roth iras. No car payments, no student loans. So for $700 to lower the payments, even with the increase in pmi, I think this makes financial sense for us to do. I just need some other financial savvy people to agree with me :)

Another Reader

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Re: Refi - this is good, right?
« Reply #4 on: November 09, 2012, 08:03:31 AM »
I don't think you will get a lot of financially savvy people to agree with you.  Saving $86 by doubling your PMI for a minimum of 5 years makes no sense to me.  How much equity DO you have?  How much could you have if you threw everything at it?

goblue

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Re: Refi - this is good, right?
« Reply #5 on: November 09, 2012, 08:24:57 AM »
We are underwater, and so we only qualify for a fha streamline refinance. Even we threw all the money we have in the bank, we wouldn't get it down enough. Again, our biggest financial mistake.

Maybe I'm off, but if we go with it, we take the $86/month savings, plus the extra $100/month we usually use to pay down the principal, and invest that instead, that seems better than paying what we are now.

?

Jack

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Re: Refi - this is good, right?
« Reply #6 on: November 09, 2012, 08:33:04 AM »
Here's what I don't understand after reading several of these sorts of threads: why is PMI so evil? Isn't it just equivalent to a temporary higher interest rate? If refinancing lowers the overall costs (interest + PMI) over the life of the loan, isn't it still a better deal?

Another Reader

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Re: Refi - this is good, right?
« Reply #7 on: November 09, 2012, 08:43:50 AM »
How far underwater are you? Did you buy this property in 2010?  Have prices gone down since then in your area?

Without understanding your financial situation, I cannot tell you what I would do in your shoes.  What I personally would do is look at how I could rearrange things so I could get enough equity to get out of FHA.

DoubleDown

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Re: Refi - this is good, right?
« Reply #8 on: November 09, 2012, 09:47:01 AM »
Here's what I don't understand after reading several of these sorts of threads: why is PMI so evil? Isn't it just equivalent to a temporary higher interest rate? If refinancing lowers the overall costs (interest + PMI) over the life of the loan, isn't it still a better deal?

+1

And as I think you're suggesting, you can always cancel the PMI once you've hit the magic 20% equity sometime after refinancing. One thing to be careful of though, particularly with an FHA loan, is that you're not being charged a large up-front payment for the PMI. This can be in the thousands, in which case it would be difficult or impossible to recover through the savings on the lower rate.

grantmeaname

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Re: Refi - this is good, right?
« Reply #9 on: November 10, 2012, 01:32:22 PM »
Here's what I don't understand after reading several of these sorts of threads: why is PMI so evil? Isn't it just equivalent to a temporary higher interest rate? If refinancing lowers the overall costs (interest + PMI) over the life of the loan, isn't it still a better deal?
1) If you're underwater on a home, is it really a good idea to be paying something like 15% interest on it?
2) Don't assume you'll be in the house for a full 30 years. The average American homeowner moves something like once in every seven, and you won't make the money back if you're paying PMI for the first five of those.

Quote
And as I think you're suggesting, you can always cancel the PMI once you've hit the magic 20% equity sometime after refinancing.
Not with an FHA loan. You have to pay it for five years.