Author Topic: Should I refinance? Currently 30 yr fixed @ 3.5% with PMI (Updated first post)  (Read 628 times)

wrangler005

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Our current loan terms are as below:

Sale price: $400k (Sep - 2019)
Initial Loan amount: $380k
Unpaid principle as of today is $372,733 (as of 7/4/2020)
30 year Fixed @ 3.5% with no points
PMI is $104 per month



We are thinking of refinancing to below terms:
30 year fixed @ 3% with no points
Refinance costs: $2k
Loan amount: $340k
down payment: Approx $33k (from savings) to bring down the LTV to 80% - 85% (depends on appraisal) + $2k refinance costs
PMI: $0

Should I GO for it or NO?


###########*****NEW OPTION*****#########
Our lender came back saying that no appraisal is required as automated property appraisal on their shows our home value at $445k. So, here is new option:

30 year fixed @ 3% with no points
Current loan amount = $373k
New loan amount = $373k
All fees (origination, title, etc) = $2150
downpayment = $0
PMI = $0
Our monthly payment will be reduced by ~$200 and we will be able to recoup the fees in less than an year.

I think this is a pretty good deal, Am I missing something?

« Last Edit: July 07, 2020, 01:04:53 PM by wrangler005 »

Sibley

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I would say yes, but am too lazy to do the math to really quantify it. Have you done the math on how much you would save in interest? Also, how long do you plan to stay in the house?

wrangler005

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I would say yes, but am too lazy to do the math to really quantify it. Have you done the math on how much you would save in interest? Also, how long do you plan to stay in the house?

We are planning to stay in the house for next 2 years, but it has very good rental potential (townhome with 63 units in a well maintained community). We are planning to rent it out when we move in next 2 years.

GoCubsGo

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If you are only staying 2 years, I'm not sure I'd bother.  The time you own the home is the biggest factor.  The longer you stay the more it makes sense to refinance.  Basically you need to figure out your savings per year with the rate reduction and pmi and subtract out the opportunity cost of locking up that $33k down payment and the closing costs.  I doubt it matters much if you only stay 2 years and move.

In regards to renting.  Based on a simple 1% rule, would you really be able to rent the place for $3,800-$4,000 a month (or are you betting on appreciation)?  If you don't sell it, will you have enough of a down payment for the next home and not have to pay PMI all over again?

wrangler005

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If you are only staying 2 years, I'm not sure I'd bother.  The time you own the home is the biggest factor.  The longer you stay the more it makes sense to refinance.  Basically you need to figure out your savings per year with the rate reduction and pmi and subtract out the opportunity cost of locking up that $33k down payment and the closing costs.  I doubt it matters much if you only stay 2 years and move.

In regards to renting.  Based on a simple 1% rule, would you really be able to rent the place for $3,800-$4,000 a month (or are you betting on appreciation)?  If you don't sell it, will you have enough of a down payment for the next home and not have to pay PMI all over again?

Here is what we were planning to do, feel free to tell me if I wrong in any assumptions, We are new to this home ownership/renting out:

Option 1: No refinance
              Stay for 2 years
               Rent it out after 2 years for $2500 (might be a little more after 2 yrs) which would cover PITI + HOA

Option 2: Refinance with $33k + $2k fees as Primary residence
               Stay for 2 years (I assume it can rented out after 2 years even though we refinanced as Primary residence)
               Rent it out after 2 years for $2500 which would cover PITI + HOA and will have a positive income of approx $350 pm

Here are some more details:

1) Current monthly payment is $2520 (Principal + Interest + Taxes + HOA)
2) If we refinance with $33k down payment + $2k fees, Our monthly payment would be $2146 (PITI + HOA)
3) Rent market value of current home is $2500 as of today based on some units that were rented in our community
4) We have to move in 2 yrs as our toddler will start elementary and current city has below avg schools
5) We will have enough to put down payment on new home after 2 yrs without PMI.

Another Reader

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If you are only staying 2 years, I'm not sure I'd bother.  The time you own the home is the biggest factor.  The longer you stay the more it makes sense to refinance.  Basically you need to figure out your savings per year with the rate reduction and pmi and subtract out the opportunity cost of locking up that $33k down payment and the closing costs.  I doubt it matters much if you only stay 2 years and move.

In regards to renting.  Based on a simple 1% rule, would you really be able to rent the place for $3,800-$4,000 a month (or are you betting on appreciation)?  If you don't sell it, will you have enough of a down payment for the next home and not have to pay PMI all over again?

Here is what we were planning to do, feel free to tell me if I wrong in any assumptions, We are new to this home ownership/renting out:

Option 1: No refinance
              Stay for 2 years
              Rent it out after 2 years for $2500 (might be a little more after 2 yrs) which would cover PITI + HOA
Option 2: Refinance with $33k + $2k fees as Primary residence
               Stay for 2 years (I assume it can rented out after 2 years even though we refinanced as Primary residence)
              Rent it out after 2 years for $2500 which would cover PITI + HOA and will have a positive income of approx $350 pm

Here are some more details:

1) Current monthly payment is $2520 (Principal + Interest + Taxes + HOA)
2) If we refinance with $33k down payment + $2k fees, Our monthly payment would be $2146 (PITI + HOA)
3) Rent market value of current home is $2500 as of today based on some units that were rented in our community
4) We have to move in 2 yrs as our toddler will start elementary and current city has below avg schools
5) We will have enough to put down payment on new home after 2 yrs without PMI.

I won't comment on the refi, but you need to understand rental income and expense before you decide to do this.  In addition to taxes , insurance, and HOA, you will have vacancy and collection loss, repairs, and frequent replacement of paint and carpet.  This property will NOT be cash flow positive or even cash flow neutral.  Please read up on rental property before you decide to do this.

Sibley

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Agreed with Another Reader. This doesn't seem like a good rental property. Since you plan to stay only 2 years, that squeezes the numbers a lot more. You'd need to do the math (still too lazy), but I'm going to change my gut to probably not worth the refi.

wrangler005

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If you are only staying 2 years, I'm not sure I'd bother.  The time you own the home is the biggest factor.  The longer you stay the more it makes sense to refinance.  Basically you need to figure out your savings per year with the rate reduction and pmi and subtract out the opportunity cost of locking up that $33k down payment and the closing costs.  I doubt it matters much if you only stay 2 years and move.

In regards to renting.  Based on a simple 1% rule, would you really be able to rent the place for $3,800-$4,000 a month (or are you betting on appreciation)?  If you don't sell it, will you have enough of a down payment for the next home and not have to pay PMI all over again?

Here is what we were planning to do, feel free to tell me if I wrong in any assumptions, We are new to this home ownership/renting out:

Option 1: No refinance
              Stay for 2 years
              Rent it out after 2 years for $2500 (might be a little more after 2 yrs) which would cover PITI + HOA
Option 2: Refinance with $33k + $2k fees as Primary residence
               Stay for 2 years (I assume it can rented out after 2 years even though we refinanced as Primary residence)
              Rent it out after 2 years for $2500 which would cover PITI + HOA and will have a positive income of approx $350 pm

Here are some more details:

1) Current monthly payment is $2520 (Principal + Interest + Taxes + HOA)
2) If we refinance with $33k down payment + $2k fees, Our monthly payment would be $2146 (PITI + HOA)
3) Rent market value of current home is $2500 as of today based on some units that were rented in our community
4) We have to move in 2 yrs as our toddler will start elementary and current city has below avg schools
5) We will have enough to put down payment on new home after 2 yrs without PMI.

I won't comment on the refi, but you need to understand rental income and expense before you decide to do this.  In addition to taxes , insurance, and HOA, you will have vacancy and collection loss, repairs, and frequent replacement of paint and carpet.  This property will NOT be cash flow positive or even cash flow neutral.  Please read up on rental property before you decide to do this.

Thank you, I will read more on rental income and expenses.

Our main objective is not to have positive income from this unit. The community has excellent rental history, the units will be rented out less than a day on market due to proximity to train station and interstate to commute to NYC.

Our goal is to have the unit rented out to pay the mortgage on it and dispose it when we retire down the lane in 15-20 years. That's the reason why we are opting to refinance and keep the mortgage at $2150. So, When we rent it out at $2500+, We would have $350 per month positive cash flow to keep up with the other expenses.

As I said earlier, We are new to this and thank you for any suggestions. The above said are our current thoughts. I will do more reading and probably will go different route when I read more about rental expenses etc.,

Dicey

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Sorry, I can't tell when your update was added. Have you considered asking your lender for a streamline re-fi? The last time I did one, the cost was only $500. Not sure if they're available any more, but worth asking.

Edited for @#$%& typos.
« Last Edit: July 09, 2020, 01:33:33 PM by Dicey »

Sibley

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Option 3 might be worth it, assuming you stay for more than a year. No comment on the possible future rental option, am still too lazy to do math.

RWD

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Our monthly payment will be reduced by ~$200 and we will be able to recoup the fees in less than an year.

I think this is a pretty good deal, Am I missing something?

Looks like 9 months to make it worth it. Go for it! This is a much better deal than the one that required a $33k down payment.

wrangler005

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Sorry, I can't tell when your update was added. Have you considered asking your lender for a streamline re-fi. The last time I did one, the cost was only $500. Not sure if they're available and more, but worth asking.

Our current mortgage is conventional and not FHA. I am not sure if it is applicable to conventional as well but I will check with my lender, thank you!

wrangler005

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Option 3 might be worth it, assuming you stay for more than a year. No comment on the possible future rental option, am still too lazy to do math.

We are hoping to stay for 2 more years from now until our toddler is school age.

Looks like 9 months to make it worth it. Go for it! This is a much better deal than the one that required a $33k down payment.

Yep, I thought it was much better option, posted here to know if I am missing/overlooking something, thank you!

Dicey

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Sorry, I can't tell when your update was added. Have you considered asking your lender for a streamline re-fi. The last time I did one, the cost was only $500. Not sure if they're available and more, but worth asking.

Our current mortgage is conventional and not FHA. I am not sure if it is applicable to conventional as well but I will check with my lender, thank you!
I've never had an FHA loan, so it's worth a phone call. Having PMI on the loan might bugger it up, but it's still worth checking.