Should I refinance my mortgage?

Question

I purchased my home in December of 2005. Fixed for 7 years at 6.3% rate and then it becomes variable. I payed $5,500 in closing costs and 0 down. My purchase price was $255,000 of which only $3,000 has been payed off in principal ( I still owe $252,000). I am paying $300 in PMI. With the current housing market I don't expect the value of my home to go up 20% in the next year. I want to get rid of the PMI payment. My credit score last year was at 640, now it is at 675. My average household income for the last two years is around $150,000/year. What are my options?

Answer 1

You can probably get the 80/20 the first folks were talking about. You will get rid of the PMI if you do this, however, the second's interest rate usually makes up the difference in higher interest rates. This means even though you don't have PMI, your payments will be pretty similar to if you do have it.

However, as long as you get fixed loans, at least you won't have to worry about the interest rate going up. The first guy mentioned the PREPAYMENT PENALTY. Make sure you don't have one. If you do, it could be in the $10,000 to $20,000 range, a lot of times with ARMs the penalty period is for two years.

When looking to refinance, you should definately see what the closing fees will be. You need to determine if the price of the closing fees outweighs the benefit of the refinance. Rule of thumb is that you need to be getting at least a 2% better rate to make up for the difference (rates aren't 4%, but they could easily be 9%+ in 2012) Since you are being proactive, it will cost you a little more now, but save you a whole lot later.

Things to consider are:

1) Will you being staying in this house for more than six years? If so, do it, if not, don't.

2) What are the closing costs? do you want them wrapped into your loan or will you pay them at closing?

3) Are you doing this to get a lesser payment now or is it because you are making sure your rate doesn't skyrocket in six more years?

4) Are you just trying to get rid of PMI? because the payments on the 1st and 2nd (which has a higher rate) usually equals about the same as a 1st with PMI - so no real advantage there.

Answer 2

You have a sub-prime loan (A paper goes by even eighths of a percent). Therefore, you almost certainly have a pre-payment penalty, probably of $252,000*6.3%*6/12*80%, or about $6350. It might be as much as $8000.

You will also pay closing costs for the new loans if you get them.

Your options are:
1) Pay down your balance enough to make PMI go away. If you make $150,000/year, you might be able to do this. Be careful not to pay so much that it triggers your prepayment penalty, although some of those are first dollar. Read your contract.

2) Refi into an 80/20 piggyback, which means paying most of the sum of the prepayment penalty and loan costs out of pocket - because if the house only appraises for $255,000 refinancing upside down is not a way to get a better loan. You might be able to get A paper now, which means the rates will be about comparable to what you have. Cost of the refi depends upon how much you buy the rate down, but without points it'll be about $3000-4000. Paying $9500 to $12000 or more (if you buy the rate down) to save $300 per month means a minimum of 32 months to break even - and you won't save $300 per month, because the second will be at a higher rate.

3) Status quo, at least until that pre-payment penalty expires.

Basically, you got hosed by your loan provider, but the options for repairing it by refinancing do not appear attractive. I'd sit tight at least until that pre-pay expires.

Answer 3

let me start by saying that I am a mortgage broker + MBA.

In your situation I would refi (obviously I’m biased but I’m doing the deal so I think this is fair advice).

This is what I would do…

Right now you can get a fixed rate at or lower than what your current first mortgage is at right now so that will be a wash. To get rid of the PMI I would do two separate mortgages 80% loan to value on the first mortgage and put the remaining balance on the new 2nd mortgage (therefore you will not have PMI any more).

Benefit: no PMI, greater tax deduction (more interest paid, that is tax deductible unlike PMI), possibly a low rate on the first mortgage,

Con: rates on 2nd mortgages are higher than those on first (usually tied to prime + or – 8.25%). There will also be closing costs which are associated with the transaction and any savings that you have from making these changes will have to be taken into consideration when weighing the payback period upon the transaction (typically 1500-10000+ depending on too many factors to get into).

At the end of the day it will still save you $

Answer 4

Now is an ideal time to refinance. You have been in the home for almost a year and rates are currently at the same lows they were a year ago, so refinancing would not drastically affect your current interest rate. $5500 in closing costs doesn't seem exorbant considering this was a 1st mortgage purchase. Keep in mind your closing costs go to third-party fees as well such as title, escroe, reserves, prepaid interest, etc. Your Final HUD will show the exact breakdown of these fees. The best option to remove your private mortgage insurance would be to refinance into an 80/20 loan. This loan option divides your loan into 2 loans: one at 80% and the 2nd at 20%. With your first mortgage at under 80%, you are no longer required to pay PMI and you may also save money on your principal & interest payment! Please feel free to contact me with any questions or if I can be of further help: [e-mail]. Best of luck!

Answer 5

There are a few ways to get rid of PMI. If your house won't appreciate by 20% you can refinance and get an 80% first mortgage and up to a 20% 2nd mortgage. (meaning the entire value of the house) PMI is only on a loan over 80% of the homes value so you can have 2 loans for over 80% of the value without paying PMI. However the 2nd mortgage will most likely have a higher interest rate then the 1st. I'd talk to a mortgage broker

Answer 6

There are lenders out there who can offer you a 1% interest. Your monthly payment will reduce drastically to $600 a month without paying PMI. However, this rate is what they called a negative amortization, that if you pay $600 a month, at the end of each year, you still owe the bank around $3000 which will be added to your principal balance, therefore if you owe today 252K, next year your new principal will be $255,000.
The advantage of this loan is, you have a low monthly payment plus everything you paid are tax write-off. And also you have 3 options if you do want to do this. First, you saved your money in your savings account, Second put more money to your principal each month or 3rd buy another property and rent it out. I just tried this rate and it really works for me because I saved a lot of money each month and that prompt me to buy another property because my lender gave me an extra $20K cash out.
You should shop around with different lenders out there and ask about this program. It really works great if you know how to manage your money. Good luck.

Answer 7

Listen the truth is this yes your loan officer could have saved you some money by putting the loan into an 80/20 but that may have been the best program for you at the time. Also unless you have alot of equity donot refinance, there is no need to. You will be paying closing cost again which will eliminate any savings you may have been able to get by refinancing. Also by having the one loan your loan officer helped you in this way. When you do have the equity you will not have to pay the closing cost to drop the pmi you will have to pay a minimal cost of an appraisal instead of having to pay a couple of thousand in closing cost!

Answer 8

You should refi your home. The loan officer did you no favors the first time around. If you DO NOT HAVE A PRE-PAYMENT Penalty on this note then yes. Have the loan officer structure the note as an 80% first note and then put the rest on a second deed of trust. Then you will have no pmi.
I am a loan officer in Tennessee.

Answer 9

On each and every FHA loan there's a 2.25% loan insurance excellent cost, so sure, that's reputable. As for some thing of your own loan, it is irresponsible for every person to assert if that's a competent deal or not without understanding the entire tale. once you're paying further expenses on excellent of the 5.25%, then no, it is not a competent deal. If the 5.25% is a no fee deal, than it will be a competent deal. no individual is attentive to without seeing your reliable faith Estimate. once you're fairly worried about the provide, than it will be a competent theory to purchase a pair extra lenders and consider. charges are down somewhat in the present day, so if it is been some days when you consider that you got that quote out of your modern-day lender, mind-set them about lowering the speed.