Author Topic: Should I refinance to get rid of PMI?  (Read 5391 times)

Mutton Chop

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Should I refinance to get rid of PMI?
« on: December 15, 2014, 05:28:02 PM »
Hello Mustachian Friends:

Should we refinance?

Current Setup:
30 year fixed mortgage w/Wells Fargo @ 3.25% Interest - FHA loan
$322,000 Balance
Loan originated in September 2012
$340 in Private Mortgage Insurance PER MONTH!
Live in California

The loan officer that set us up wants us to refinance at 3.75% 30 year fixed to get rid of the PMI.  By refinancing, we lose the PMI and transition into a traditional loan.  It would get rid of the mortgage insurance and reduce our payment by $317. 

I am skeptical about my long term costs and refinancing to a higher rate.  I plan on paying the home off within 20 years, so does our interest rate matter anyways?  How would you guys look at this situation?  Thank you!

EDIT:  It should be noted that our PMI will drop automatically in 2021, once the loan hits 78% loan to value.  If we pay down principal we get out as early as 2017.  We bought this house prior to the new FHA guidelines going into effect.

Cheddar Stacker

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Re: Should I refinance to get rid of PMI?
« Reply #1 on: December 15, 2014, 05:51:47 PM »
Yes.

3.75-3.25=0.50*322,000=1,611/year extra mortgage interest, but you are trading that for $340*12=4,080 in PMI expense reduction. Plus increased cash flow of ~$3,800/year.

Seems pretty clear to me unless I f'ed up the math in my head. It's counter-intuitive, but take the higher interest rate on this one and never look back.

zinethstache

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Re: Should I refinance to get rid of PMI?
« Reply #2 on: December 15, 2014, 07:26:28 PM »
Don't forget your refinance fees, and be sure to look at points to buy down check all your options before proceeding as there are many ways to slice this one:) This is all assuming it is a buy and hold home for you.

Dan_at_Home

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Re: Should I refinance to get rid of PMI?
« Reply #3 on: December 15, 2014, 08:38:29 PM »
EDIT:  It should be noted that our PMI will drop automatically in 2021, once the loan hits 78% loan to value.  If we pay down principal we get out as early as 2017.  We bought this house prior to the new FHA guidelines going into effect.
I suspect you did not put down very much money when you took out this mortgage.  If you put 20% down initially, reaching a 78% loan to value should probably not take 3 years. 

The two best possible options are (1) prepay asap to get to 78% loan to value or (2) refinance.  Paying that PMI until 2021 is just crazy.  You need to get an accurate ballpark figure as to how much all the total fees will be to refinance and work out the two options and see which is better. 


FinallyWakingUp

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Re: Should I refinance to get rid of PMI?
« Reply #4 on: December 18, 2014, 05:09:50 PM »
Before you do anything you should call your current lender and see if they will remove the PMI if you pay for a new appraisal to be done to show the value is there to support dropping the PMI. That might cost you $400-$600. Much cheaper than a refinance.

I have been a mortgage loan officer for 15 years although not in California.

Poorman

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Re: Should I refinance to get rid of PMI?
« Reply #5 on: December 18, 2014, 05:16:11 PM »
Before you do anything you should call your current lender and see if they will remove the PMI if you pay for a new appraisal to be done to show the value is there to support dropping the PMI. That might cost you $400-$600. Much cheaper than a refinance.

I have been a mortgage loan officer for 15 years although not in California.

For conventional loans this is good advice, but the OP indicated this is an FHA loan, so they won't drop the MIP early.

Mutton Chop

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Re: Should I refinance to get rid of PMI?
« Reply #6 on: December 22, 2014, 07:40:37 PM »
Hi Everyone,

Thank you so much.

Yes, we did put 3.5% down, and this is definitely a buy and hold home.  It does seem counterintuitive to trade up to a slightly higher interest rate, but the PMI is a drain.

Also, we have formally appealed the PMI with Wells Fargo and were declined due to federal regulations.

Loan closing costs are $2,000.

« Last Edit: December 22, 2014, 07:42:28 PM by debt_destroyer »

clarkfan1979

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Re: Should I refinance to get rid of PMI?
« Reply #7 on: December 23, 2014, 02:53:00 PM »

EDIT:  It should be noted that our PMI will drop automatically in 2021, once the loan hits 78% loan to value.  If we pay down principal we get out as early as 2017.  We bought this house prior to the new FHA guidelines going into effect.

Is this correct? I thought you pay PMI for the life of the loan if it's an FHA?

Poorman

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Re: Should I refinance to get rid of PMI?
« Reply #8 on: December 23, 2014, 03:23:09 PM »

EDIT:  It should be noted that our PMI will drop automatically in 2021, once the loan hits 78% loan to value.  If we pay down principal we get out as early as 2017.  We bought this house prior to the new FHA guidelines going into effect.

Is this correct? I thought you pay PMI for the life of the loan if it's an FHA?

FHA changed the PMI to life of loan starting in April 2013.  Loans originated prior to that allow removal of PMI the way debt_destroyer describes.

Juggler451

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Re: Should I refinance to get rid of PMI?
« Reply #9 on: December 27, 2014, 12:24:55 PM »
If you can juggle funds around then pay down principal to eliminate PMI. Once remover - or before depending on value - get a HELOC. I did one from KeyBank and they will do 85% no prob and 90% with no extra fee if $10k/month in income. You can also get 100% LTV if you pay fees of $500-800.