The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: firemane on October 12, 2020, 05:51:05 PM
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Hey all.
What is the best way to go about refinancing a very small loan (under $50k left on a house worth $170k)? The loan is an fha loan and it has a fixed cost pmi since it was refinanced once after 2013 when the fha pmi laws changed. I talked to a few lenders and they won’t take loans under 80k. thepmi is about $900 a year and very slowly reducing and I would love to get rid of it. On the contrary, if the up front costs are big I may as well just pay it off faster. Current rate is about 3.6 (not counting that pesky pmi).
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Talk to more banks. Plenty of them will do loans for 50K or so. But also weight the costs of refinancing for such a small loan amount to see if it’s worth it. I suspect it may not be.
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I just refinanced a few properties, closing costs were insane. So my vote would be to just pay it off.
I'm unfamiliar with PMI rules regarding FHA loans, are you saying it never goes away regardless of the loan to value? As i type this that makes sense, you get to put very little skin in the game that has to come with a price. Which is guess is PMI.
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I just refinanced a few properties, closing costs were insane. So my vote would be to just pay it off.
I'm unfamiliar with PMI rules regarding FHA loans, are you saying it never goes away regardless of the loan to value? As i type this that makes sense, you get to put very little skin in the game that has to come with a price. Which is guess is PMI.
Thanks for both of your replies.
Personally, I think the pmi for fha post 2013 is unfair. The fact that you have to pays ton of pmi with a 30% or less LTV is insane. I think it should at least reduce with the value of the loan (0.8% of what you owe, not 0.8% of what you would owe assuming you never paid a penny extra in principal). It just makes things weird for people who started out lower income and worked up to a better one - which is most people really.
I checked around and it is about 2k to close since it’s barely worth the bank’s time, so I think paying it off sooner is the correct course of action.
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Check with a local credit union or regional bank and see if "refinancing" into a HELOC would work for you. HELOCs are often smaller and come with lower/minimal closing costs. If you explain to the refinancing bank that you're paying off your primary with it and the HELOC will be in first position, you'll probably be able to both get rid of the FHA PMI and get a better rate than 3.6%.
The one drawback might be that a HELOC might not be fixed rate. Check on that.
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Thanks for the heloc recommendation, I’ll check into it for sure
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1. Check local credit unions to see if they will take smaller loans.
2. Look at Helocs.
3. Look at doing a fixed rate cash out refinance to get to the $80K. Use extra funds to pay off other, higher interest rate debts.
For all the options you're going to want to look at the costs carefully and see if it is worthwhile.
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Cash out refi to 80% LTV and invest the money.
-W