Refinance to ditch PMI?

[frugalfoothills]

Hi all,

I bought my home in 2013 as a naïve 23 year-old. Didn't have much of a down payment so I went with an FHA loan, 4.25% fixed at 30 years. Though it wasn't a financially responsible decision at the time, it turned out to be a great move as the value of my home has appreciated rapidly along with my income over the years, and I have no doubt that if I would have waited I would have bought MORE house that I didn't need. Love my home and am thankful for my younger self's short-sightedness. :)

Anyway, being that it's an FHA loan, I'm saddled with the dreaded PMI. It sounds like there are ways to ditch the PMI through reaching a certain LTV%, but I'm thinking the best/easiest way to ditch it would to just refinance, maybe into a 15 year fixed?

Mortgage payment: $1064/month
Interest: $485.90
Escrow: $320.38
Principal: $257.96 (kill me)
Mortgage Ins: $153.64 (kill me)

Value of home in 2013: $154,000
Current value of home: $190-$200k
Outstanding mortgage principal: $137,000

I am not necessarily trying to fast-track the payoff of my mortgage, but I DO cringe at the meager amount going to principal each month, especially considering the PMI I pay is half that amount. Interest rate isn't terrible but I could probably do better there, too. I will be 29 this year, am single, and no plans to move any time soon.

Has anyone refinanced out of an FHA loan to ditch the PMI? Any recommendations? What should I be looking for? Ways to avoid paying closing costs? Also, seeing as the value of my home is $180k on the conservative end, am I already at 76% LTV? Is there a way to drop this without a refi?

Thanks for any advice.

[affordablehousing]

have you called your lender yet? Could be a good place to start.

[Easye418]

 Call your lender, you should be able to get them to remove the PMI since you are below 80% LTV.

[poetdereves]

To remove the PMI your lender will most likely require you to have it appraised again. It’s a few hundred out of pocket, but will save a couple grand a year. Do that first. Rates are going up, so if you refi your rate could possibly be higher than the 4.25%. If that doesn’t work, then you can reevaluate.

[ditheca]

Yes, you'll need to pay for a reappraisal if you want them to consider the increased value.  If you are confident in the new value, definitely do that. $400 once to avoid $150/month is a good deal.  If you have a scummy mortgage bank, they don't actually have to let you do this... but I think most will.

I have a loan with PMI, but the extra cash let me max out 401k, IRA, and spousal IRA every year.  I can't come up with enough money to pay it down AND invest to the max, but it makes $$$ sense to keep paying.  I'm basically paying $50/month to borrow $15000 which I have invested tax free.

I'm angling for a raise to let me buy it off, but it was a good decision even if I have to pay it for a few years.

Just occurred to me that my own home value has gone up by 20k since I purchased it; I may need to get my own appraisal soon.

[thd7t]

Yes, you'll need to pay for a reappraisal if you want them to consider the increased value.  If you are confident in the new value, definitely do that. $400 once to avoid $150/month is a good deal.  If you have a scummy mortgage bank, they don't actually have to let you do this... but I think most will.

I have a loan with PMI, but the extra cash let me max out 401k, IRA, and spousal IRA every year.  I can't come up with enough money to pay it down AND invest to the max, but it makes $$$ sense to keep paying.  I'm basically paying $50/month to borrow $15000 which I have invested tax free.

I'm angling for a raise to let me buy it off, but it was a good decision even if I have to pay it for a few years.

Just occurred to me that my own home value has gone up by 20k since I purchased it; I may need to get my own appraisal soon.

The appraisal would be required even if OP wants to refinance.  PMI is much more expensive than it looks like on the face, because it doesn't amortize with the loan value.  OP (and ditheca) should do what they can to get out of it.  There's an active thread adjacent to this one where I showed some math on the effective rate of PMI.  It's high.

[jax8]

I refinanced to remove PMI from a FHA loan.  Check your paperwork for the fine print (or just call your lender) to see how PMI can be removed.  We received a letter in 2016 saying that PMI could no longer be removed with a new appraisal, and we had to have paid enough to equal 22%, not just 20%.  It was one of the big irritations that pushed me to refinance.  (That and lowering my interest by 2.5%)

We also had a $1,500 first time home buyers grant/loan/credit that had to be repaid if we ever refinanced or sold.  Luckily my husband remembered that because I didn't.  Again--check your paperwork.

We refinanced to a lower rate, shorter term, no PMI.  Most of my first few mortgage payments are attacking the $4,000 worth of fees my new lender rolled in, so it still hurts.  BUT--adding up how much interest and PMI I'm saving over the life of this loan?  Worth it.

[robartsd]

I have a loan with PMI, but the extra cash let me max out 401k, IRA, and spousal IRA every year.  I can't come up with enough money to pay it down AND invest to the max, but it makes $$$ sense to keep paying.  I'm basically paying $50/month to borrow $15000 which I have invested tax free.

Your $15000 is costing you about 4% APR in addition to your mortgage interest rate on that money.

At origination (June 2016, 30 Fixed 3.75%, 5% down) my PMI represented about 2.6% increased APR on the money borrowed over 80% LTV (and this APR increases as loan balance decreases - current extra APR on amount needed to cancel my PMI is 3.4%). To cancel PMI in years 2-5 based on current value without refinancing I'd need to get down to 75% LTV - I'm not sure appreciation has been high enough (6.67%) yet to reduce the balance needed to cancel PMI based on this lower LTV ratio. I estimate that in about 2 years appreciation and principle payoff will have brought us to 80% LTV, so it would be time to refinance if rates are favorable. If rates aren't favorable at that time, I'd have to decide between paying down extra principle to get to 75% LTV or waiting until end of year 5 and only needing 80% LTV (by which time appreciation alone is likely to be sufficient, but effective interest rate would be very high for 12-18 months).

[shelbyautumn]

I refinanced to get out of PMI on an FHA loan back in 2015. Mine was also due to appreciation on the house and not pay down of the loan. I made the same “mistake” at 23 years old. Bought the house for $158, sold it 3.5 years later for $238. Hating apartment living payed off!

From what I understand, you HAVE to refinance to get out of PMI on an FHA loan. They won’t do it with a phone call like they would with a conventional mortgage.

I would look around at local credit unions to see if you can find one that will cover your closing costs - that’s what we did when we refinanced. I think they covered up to $5k. You’ll get a better rate on a 15 year mortgage, but I don’t know that I would do a 15 year over a 30 year. Rates are climbing, but they’re still not outrageous, so you’d be better off investing the difference.  If you’re going to do it, do it sooner rather than later. Rates are only getting higher!

[slow hand slow plan]

I had an FHA and they would not let me out with an appraisal. I had to refinance which worked out well. saved the PMI amount and dropped the interest rate to 3.5 for a new 30 year fixed. Interest rates are going up and right now around 4.15 (i think) so you should start today calling the company and then if no go; refinance.