Hello,
While it looks like the majority of topics in this specific forum are geared toward investment properties, I believe my question fits in the purpose of the forum.
So my question is: Back in 2013, my wife and I bought our first home. So eager to be home owners and take advantage of the low rate environment (which I was sure have gone up by now, whoops), we only saved up a 5% down payment. Enough to get a 30 year conventional loan, but we did take on private mortgage insurance. It currently costs us $144/mo.
Our monthly payment breakdown is: $850 for principal/interest, $193 for property taxes, $144 for PMI and $92 for home insurance. So about $1280. My understanding is that at 80% LTV, I can request for the PMI to be dropped. At 78% LTV, it would automatically fall off (this is according to my bank).
Currently, I owe $170,828 and when we bought the house, it was appraised at $195,500. It's probably worth at least $220,000 based on the market and the updates we've made. But because the value is still listed at $195,500, we're only at 87% LTV.
So I am weighing a couple options. One is have the house reappraised. Talking to a lender at my bank, they said the LTV would need to hit 75% in the case of an appraisal for the PMI to drop. Not sure why that is, but it was a pretty quick inquiry I made, so that may not be 100% accurate. To get to 75% LTV, the house would need to appraise at about $227,500. That is probably pushing it at this point. The cost of the appraisal would be $650 and take 6 or so weeks to come in.
The second option is to refinance. With the rate environment still very low, I have looked into Rocket Mortgage at they would approve me for a bevy of options. I could go to a 10 year, a 15 year, or 20 year with a lower interest rate than I currently have. Those scenarios would mean taking on some closing costs, and I think would increase our current loan amount anywhere from $3500-$6000 depending on what we do. That extra cost would be built into the loan, so it wouldn't be out of pocket.
The upside is, the PMI drops off, I have a lower rate, and my timeline is severed by at least 7 years if I don't make extra payments. The downside is a higher payment, taking on some more money to get that better rate, and having less to invest.
Should I just stand pat and keep paying until the PMI just drops off, or should I try to accelerate the process with one of these options? I have thought about just aggressively paying the mortgage down faster, but that seems silly when both of these options gets me there faster and frees up an extra $1700/yr by not having that PMI payment.