Author Topic: Refinancing to higher rate to eliminate PMI  (Read 7076 times)

juuustin

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Refinancing to higher rate to eliminate PMI
« on: October 17, 2014, 09:53:22 AM »
I mentioned my plans to re-fi in order to rid myself of dreaded FHA MIP in another thread, but I now have actual numbers to throw out.  I will be refinancing from a 3.75% FHA rate to either a 4.25% or 4.50% conventional loan with no PMI.  The details are included below:

Principal on Loan Remaining: $278,000
Current payment (including $270 MIP/month): $2,033

Option 1:

Loan Amount: $283,000 (incl. closing costs and new escrow)
Interest Rate: 4.25%
Monthly Payment: $1,742
Closing Costs: $2,800 ($395 refunded at closing)

Option 2:

Loan Amount: $280,000 (no closing costs, only escrow funding)
Interest Rate: 4.50%
Month Payment: $1,772
Closing Costs: $395 (all refunded at closing)

There are multiple other options that were presented, but they mainly include paying points to knock off an eighth or a quarter of a percent and that just isn't worth it to me.

This will be my first refinance so I want to make sure I'm not missing anything, but there is no reason not to take a higher rate here in order to eliminate the MIP, right?  If you include the MIP, my effective interest rate is well above 4.25% or 4.50%. 

My only other decision would be to take the $30/month hit to knock off all closing costs or pay the closing costs to get a slightly lower payment.  Ignoring discounted rates and future dollar values, it would take over seven years to recoup the closing costs at $30/month and I do not foresee still being in the house at that point.  Even if we are, factoring discount rates and inflation, saving the money now still seems like the best option.

Any advice is appreciated!!

BaldingStoic

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Re: Refinancing to higher rate to eliminate PMI
« Reply #1 on: October 17, 2014, 10:20:07 AM »
Rates seem high for today's market http://www.mortgagenewsdaily.com.  If you're not planning on staying in the house long-term then you should seriously consider a 5/1 or 7/1 ARM.  The rates will be cheaper and the risk of rising interest becomes irrelevant if you sell before the rates can increase.

Similarly, If you plan on keeping the loan for the long-term then you're better of taking the mortgage with the lower interest rate and absorbing the closing costs.  But If you think you're likely to move or ReFi then it's generally better to go with the zero-cost loan even if the rates a bit higher (within reason of course). 

My recommendation is to build an amortization table in Excel and then plug in number for the various scenario's.  Plenty of good tutorials on line for doing this.   

Also be sure the get a couple different GFE quotes and then get the lenders to compete against one another.  They can often drop fees a bit further or provide extra incentives when they are competing against other lenders.   

 

Bob W

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Re: Refinancing to higher rate to eliminate PMI
« Reply #2 on: October 17, 2014, 10:28:30 AM »
Shop the rates and points.  If you're going through a mortgage broker ask for a detailed accounting of  how they are compensated.   They will normally just show you the so called points.  But most of time they are bumping up the interest rate and receiving a significant amount of money on that bump.

The points are negotiable you should know.   And don't accept any bump up in the interest rates as a commission costs.   

Be very stern --"$800" is the total I'm willing to pay for you to do this transaction.  Be willing to walk and make some more calls to find the broker who will do this.


minimustache1985

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Re: Refinancing to higher rate to eliminate PMI
« Reply #3 on: October 17, 2014, 10:43:28 AM »
I actually called my lender and another yesterday just to see about rates after reading your thread, and you should be able to do better.  My lender could only have gotten me 4.25% fixed, but the first one that called from lending tree could do 4%- you should be able to get at least that on a fixed.

Variables should be in the 3's and are worth considering if you don't plan to be in the home long term, they mentioned I could get a 3.25 or 3.5% ARM which doesn't work for me (I plan on staying here indefinitely) but would make for some great numbers for you.

juuustin

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Re: Refinancing to higher rate to eliminate PMI
« Reply #4 on: October 17, 2014, 11:06:23 AM »
I actually called my lender and another yesterday just to see about rates after reading your thread, and you should be able to do better.  My lender could only have gotten me 4.25% fixed, but the first one that called from lending tree could do 4%- you should be able to get at least that on a fixed.

Variables should be in the 3's and are worth considering if you don't plan to be in the home long term, they mentioned I could get a 3.25 or 3.5% ARM which doesn't work for me (I plan on staying here indefinitely) but would make for some great numbers for you.

Thanks for the info.  I guess I should have included the fact that I do not have 20% equity in the house right now, which is the reason the rates are a little higher.  I was presented a "best case" scenario which assumes my appraisal comes in a lot higher than expected and would get me to 20%.  The rate on that was 3.875% which seemed about right.  That will be the obvious choice but I can't see my house appraising for the number it would need.

I have shopped around a decent amount and these were the best "total" costs that I have found.  A lot of the other lenders are more turned off by the high LTV and have quoted me monthly payments that are almost identical to what I am currently paying.  I am going to talk to the lender after work today so hopefully I will have some more clarity on the ARM rates as well.

ADK_Junkie

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Re: Refinancing to higher rate to eliminate PMI
« Reply #5 on: October 17, 2014, 12:45:43 PM »
I am currently in the process of refinancing. 

My appraisal came in way lower than expected (actually 9% lower than I paid 5 years ago) with a 97% LTV.  Fortunately, I have a little bit of cash saved, so if I throw another 15K lowering the loan amount, I get to a 88% LTV. 

Additional details: 15 year-fixed 3.25%
Total Closing Costs (after rebate): $3,300.
With an LTV of 88%, my PMI is about $60 for 27 months.  I can live with that.
Bonus, my P&I payments are only $100 more a month!!!  (while the monthly principal paydown moves from $300/mo to $700/mo)

Switched from a 30 yr 4.875% (with 25 years remaining).

I think the refinancing is not worth while unless you a really going after it, like moving from a 30 year to 15 year. 

This is all part of my plan to be debt free and FI in about 15 years... maybe sooner, but the timing works well as its when kids would start college.

juuustin

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Re: Refinancing to higher rate to eliminate PMI
« Reply #6 on: October 20, 2014, 05:55:26 AM »
I am currently in the process of refinancing. 

My appraisal came in way lower than expected (actually 9% lower than I paid 5 years ago) with a 97% LTV.  Fortunately, I have a little bit of cash saved, so if I throw another 15K lowering the loan amount, I get to a 88% LTV. 

Additional details: 15 year-fixed 3.25%
Total Closing Costs (after rebate): $3,300.
With an LTV of 88%, my PMI is about $60 for 27 months.  I can live with that.
Bonus, my P&I payments are only $100 more a month!!!  (while the monthly principal paydown moves from $300/mo to $700/mo)

Switched from a 30 yr 4.875% (with 25 years remaining).

I think the refinancing is not worth while unless you a really going after it, like moving from a 30 year to 15 year. 

This is all part of my plan to be debt free and FI in about 15 years... maybe sooner, but the timing works well as its when kids would start college.

I definitely understand what you mean about "really going after it", but with the no closing costs and refunded appraisal fee, dropping my payment over $200 a month for minimal hassle just seems like a no-brainer.  My lender is telling me that my house only needs to come in at $5,000 more than I paid but in reality it should come in at about $20,000 more based on comps.

I will definitely check back in here once it is completed with the actual numbers though!

ADK_Junkie

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Re: Refinancing to higher rate to eliminate PMI
« Reply #7 on: October 20, 2014, 08:01:46 AM »
Just know that there is no free lunch.  You don't really have no closing costs, you are just paying for the closing costs (and more) through your Mortgage Interest Rate.  There is an inverse correlation (generally) between how much you pay up front and how low your interest rate goes.  Try to find a sweet spot there.  And, please, please, shop around. 

retired?

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Re: Refinancing to higher rate to eliminate PMI
« Reply #8 on: October 20, 2014, 08:18:30 AM »
did you mention the value of the home?  You can have PMI dropped once you clear 20% equity threshhold.....i.e. PMI is not for the life of the loan.

The rate differentials do seem high.  I'd be inclined to stick with current loan and prepay to get equity percent up.  That new rate will apply til paid off.

forummm

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Re: Refinancing to higher rate to eliminate PMI
« Reply #9 on: October 20, 2014, 08:56:20 AM »
did you mention the value of the home?  You can have PMI dropped once you clear 20% equity threshhold.....i.e. PMI is not for the life of the loan.

The rate differentials do seem high.  I'd be inclined to stick with current loan and prepay to get equity percent up.  That new rate will apply til paid off.

With recent FHA loans, you have to pay PMI for at least 11 years or for the life of the loan. It's due to all the foreclosures in recent years. They have to refill the insurance fund.

http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

juuustin

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Re: Refinancing to higher rate to eliminate PMI
« Reply #10 on: October 20, 2014, 09:41:43 AM »
did you mention the value of the home?  You can have PMI dropped once you clear 20% equity threshhold.....i.e. PMI is not for the life of the loan.

The rate differentials do seem high.  I'd be inclined to stick with current loan and prepay to get equity percent up.  That new rate will apply til paid off.

With recent FHA loans, you have to pay PMI for at least 11 years or for the life of the loan. It's due to all the foreclosures in recent years. They have to refill the insurance fund.

http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf

This is the reason I am pursuing this course of action.  I will not be in this house for 11 years.  I can save over $200 a month by completely eliminating my mortgage insurance payment.  I really don't see how this is a bad idea.  I'm not arguing that I shouldn't compare rates/closing costs/etc., but the actual decision to refinance seems cut and dry.  To put it in perspective, I could take a $280,000 loan at 5.75% with $380 allocated for tax/homeowner's insurance (my current payment) and STILL save money from what I am paying now ($2,014 vs. $2,033).