Should I refinance?

[inabag]

Backstory:
We moved in 06/08, original loan was 6.125%, payment was roughly $1800/month. We refinanced in 09/09 at 5.250%, payment is now $1676/month. We currently pay PMI.

We are planning to purchase a new home in the next 12-18 months and sell this current one.

Current Loan Info (30 year FHA, PMI, 5.250%):

We would be getting an appraisal done prior. Current comps have been selling anywhere from 250-270k. Ours is easily worth the higher end of that as we have done a lot of improvements.

Current Refinance options presented by mortgage consultant:

Option #1 (30 year Fixed, 95% of value, 4.750%):

Option #2 (30 year Fixed, 95% of value, 4.625%):

Option #3 (30 year Fixed, 90% of value, 4.750%):

When talking to him our goal was to get rid of PMI, lower payment, and keep loan payoff amount similar/same as current loan.

Things to consider:
1) We have to bring a little bit of money to the table to make this happen (all options under 2k).

2) We will get our current escrow balance back (roughly $600).

3) We won't have a mortgage payment the month of closing.

So is it worth it if we do plan to sell in 12-18 months. If we were in longer term, I would do it no problem. Help me decide if we should do it, and if so, which option makes the most sense.

THANKS!

 

[bignateyk]

Don't you need 80% of value to get rid of PMI?

 

[inabag]

Don't you need 80% of value to get rid of PMI?

The higher rate allows you to refinance at higher than 80% LTV. If we could get down to 80% or pay more money at closing, we could get a lower rate.

Some more info:
http://www.trulia.com/blog/valeocroyteam/2010/02/lender_paid_mortgage_insurance_is_it_for_you

 

[Thump553]

Either your credit rating is horrendous or you need to get a new "mortgage consultant" ASAP. Those interest rates are way above market rates. I suspect your consultant's focus is more on generating fees for him/her than getting the best deal for yourself.

I notice you have a FHA mortgage, a full appraisal is most likely not necessary for a refi. You may want to look into the HAMP program to see if you fit. Do some research and maybe talk to your present lender, check out the internet lenders like Quicken (mortgage brokers hate them, which should tell you something).

On your points to consider, #2 & #3 are always correct. Most of the refis I see these days don't involve bringing new money in (except maybe $100-$300). Since you plan on selling so soon and your original rate is not that bad I really question the value/need of going through a refi.

 

[inabag]

Either your credit rating is horrendous or you need to get a new "mortgage consultant" ASAP. Those interest rates are way above market rates. I suspect your consultant's focus is more on generating fees for him/her than getting the best deal for yourself.

I notice you have a FHA mortgage, a full appraisal is most likely not necessary for a refi. You may want to look into the HAMP program to see if you fit. Do some research and maybe talk to your present lender, check out the internet lenders like Quicken (mortgage brokers hate them, which should tell you something).

On your points to consider, #2 & #3 are always correct. Most of the refis I see these days don't involve bringing new money in (except maybe $100-$300). Since you plan on selling so soon and your original rate is not that bad I really question the value/need of going through a refi.

Our credit is really good, 750+. He has not run our credit yet actually, these were just numbers he put together after looking at our current loan info. He was recommended by a friend, so I don't really know if he has an angle if any.

We are comfortable with our current monthly payment, have zero credit card debt, cars paid off, and 20k+ liquid, so I don't think the HAMP program is for us. My understanding of the rate being higher was to compensate for the fact we aren't under the 80% LTV to get rid of PMI.

I am looking into this because I am curious if we can save some money between now and when we sell.

Thanks for the feedback.

 

[Linflas]

Our credit is really good, 750+. He has not run our credit yet actually, these were just numbers he put together after looking at our current loan info. He was recommended by a friend, so I don't really know if he has an angle if any.

We are comfortable with our current monthly payment, have zero credit card debt, cars paid off, and 20k+ liquid, so I don't think the HAMP program is for us. My understanding of the rate being higher was to compensate for the fact we aren't under the 80% LTV to get rid of PMI.

I am looking into this because I am curious if we can save some money between now and when we sell.

Thanks for the feedback.

I don't know much about FHA but the rates are normally the same as VA which is what we have and the current VA rate for a straight refi is around 3.7 and unless you are taking cash out of equity no appraisals are required. I too suggest you check around a bit more as the rate that guy is quoting you is 1% higher than it should be.

 

[Vdubchaos]

Those interest rates are horrible....run

Try this calculator and you need to figure out what your BREAK EVEN POINT will be.

https://www.americaneagle.org/Calculators/Should-I-Refinance-Calculator.aspx

THAT alone will determine if it makes sense or not.

If you are selling within 12-18 months chances are VERY high that it won't make sense.....

Also general rule of thumb is 1% lower (but it varies based on personal situation). Your Interest rate is not getting lower....but it should be in the mid/upper 3% (currently)

PS. Stay away from brokers.....and big banks. Small local bank (with good reputation) or credit union.

 

[inabag]

Just to be clear the current loan is FHA, but the proposed loan is not. We were told we can't refinance FHA > FHA because of PMI. There is no option with an FHA loan to do the higher rate that gets rid of PMI, and changes to PMI for loans after 6/11 double the PMI rate. I researched some of this to confirm what he told us.

So far the responses are echoing what I thought - that since we are gonna move, this may not be worth it. Gonna play with his calculator though, thanks Vdubchaos.

 

[Pulsar]

Either your credit rating is horrendous or you need to get a new "mortgage consultant" ASAP. Those interest rates are way above market rates. I suspect your consultant's focus is more on generating fees for him/her than getting the best deal for yourself.

I notice you have a FHA mortgage, a full appraisal is most likely not necessary for a refi. You may want to look into the HAMP program to see if you fit. Do some research and maybe talk to your present lender, check out the internet lenders like Quicken (mortgage brokers hate them, which should tell you something).

On your points to consider, #2 & #3 are always correct. Most of the refis I see these days don't involve bringing new money in (except maybe $100-$300). Since you plan on selling so soon and your original rate is not that bad I really question the value/need of going through a refi.

Take a deep breath and read his whole post. The higher rates are specifically because they are needed to get rid of the PMI.

This is fairly easy to calculate. Your current option over 18 months will cost you:
18 months of PMI: $1,708
Interest over the next 18 months: $29,525.43
Total money lost by you: $31,233.43

Option 1:
Interest over the next 18 months: $17,246.26
Refi Fees: $607
Total money lost by you: $17,853.26

Option 2:
Interest over the next 18 months: $16,715.62
Refi Fees: $-250
Total money lost by you: $16,465.62

Option 3:
Interest over the next 18 months: $17,097
Refi Fees: $-1099
Total money lost by you: $15,998

Be aware, however, that if you increase the value of your property and support that with a refi, your taxes may increase as well (though probably to the tune of a couple hundred a year at the most).

Give me a few moments - it appears they played with your loan amount in each option... I may be off a bit with my numbers. Ok, just doublechecked. It doesn't matter if I'm off a grand or two. The interest cost differences due are huge compared to any refi costs from the bank.

The difference between the three options is almost nothing - it really comes down to which you can handle financially.

HAMP won't help - you're not struggling to make your payments (are you?). I don't think you can HARP either unless it's' changed. I don't believe they allow FHA, but it would be worth a free call to a good mortgage company like quicken to find out.

Refinance NOW. You may save as much as $13k in interest. I should just pull out the refi fee crap. It's the same for each loan essentially. The only thing you need to worry about is if you have the cash to make it happen and how much money you want to save. These values go down if you're only in the house 12 months. Down further if it takes a month to refi. In the end, you're still going to be saving $8k in interest in the worst case, where you're only in the house with the new loan 11 months.

 

[inabag]

Ok, just doublechecked. It doesn't matter if I'm off a grand or two. The interest cost differences due are huge compared to any refi costs from the bank.

Refinance NOW. You may save as much as $13k in interest.

Ok, thats the kind of math I was looking for! Even adding in the appraisal + prepaid escrow fees = the money we have to bring to closing, it looks like the interest alone would benefit our total loan amount in 12-18 months. I had not thought to look at it this way.

So in ballpark number theory here...could we make our same monthly payment for the next 18 months and net 13k more equity because of the lowered interest?

 

[alkemyst]

Either your credit rating is horrendous or you need to get a new "mortgage consultant" ASAP. Those interest rates are way above market rates. I suspect your consultant's focus is more on generating fees for him/her than getting the best deal for yourself.

I notice you have a FHA mortgage, a full appraisal is most likely not necessary for a refi. You may want to look into the HAMP program to see if you fit. Do some research and maybe talk to your present lender, check out the internet lenders like Quicken (mortgage brokers hate them, which should tell you something).

On your points to consider, #2 & #3 are always correct. Most of the refis I see these days don't involve bringing new money in (except maybe $100-$300). Since you plan on selling so soon and your original rate is not that bad I really question the value/need of going through a refi.

It's helps if you qualify your statements. Current national average is 3.75% for a 30 year refi.

That will be for someone of stellar credit (700+). A refi rate is going to be a higher premium than a new loan.

 

[olds]

We are planning to purchase a new home in the next 12-18 months and sell this current one.
Don't refinance.

 

[inabag]

We are planning to purchase a new home in the next 12-18 months and sell this current one.
Don't refinance.

Why?

 

[MixMasterTang]

If you currently have an FHA loan you should be looking at the FHA Streamline program: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/buying/streamli

 

[olds]

Why?

It will cost money to close the loan. You likely won't get it back between now and when you sell.

 

[inabag]

If you currently have an FHA loan you should be looking at the FHA Streamline program: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/buying/streamli

We have been told we cant FHA Streamline because of PMI. I explained this above, but basically our PMI would double to over $200 a month which heavily offsets any savings we might get from refinancing to a lower rate. The only way to offset closing costs would be a higher rate as well, so combine the two and I don't think its worth it.

 

[Pulsar]

Ok, thats the kind of math I was looking for! Even adding in the appraisal + prepaid escrow fees = the money we have to bring to closing, it looks like the interest alone would benefit our total loan amount in 12-18 months. I had not thought to look at it this way.

So in ballpark number theory here...could we make our same monthly payment for the next 18 months and net 13k more equity because of the lowered interest?

Yeah, most people just don't get that even with these 'low' interest rates, you're still going to pay more than your house is worth in interest. It adds up: in 18 months you'll pay between $31,000 and $16,000 in interest, depending on your rate.

It's a breeze to input your numbers into the load calculator at bankrate (google "bankrate loan calculator"), click amortize, and see how much interest you are going to pay.

A $230,000 30 year loan at 6.25% will pay $279,000+ in interest.

The key here is that you recently refinanced. That means that you are still paying FAR more interest on your loan than principle, so you won't be hurt badly by refinancing again. This is the nature of a loan like this: You pay around 40% of the interest on the loan in the first 7 years, so dropping your loan rate is HUGE during that period, where if you only had 10 years on your loan left it wouldn't make sense at all.

Link to loan calculator:
http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx

 

[Pantoot]

We have been told we cant FHA Streamline because of PMI. I explained this above, but basically our PMI would double to over $200 a month which heavily offsets any savings we might get from refinancing to a lower rate. The only way to offset closing costs would be a higher rate as well, so combine the two and I don't think its worth it.

You were told correctly, the FHA streamline really only helps people who closed their loan before June 1, 2009, otherwise the MIP is way too high.

 

[Vdubchaos]

We have been told we cant FHA Streamline because of PMI. I explained this above, but basically our PMI would double to over $200 a month which heavily offsets any savings we might get from refinancing to a lower rate. The only way to offset closing costs would be a higher rate as well, so combine the two and I don't think its worth it.

Just plug in the numbers into the calculator I posted.

Again, the key here is BREAK EVEN POINT

Assume Closing costs to be 4-5% (on the high end)

Calculator will tell you EXACTLY when you will break even and answer your question.

And again, run from that lender >go to a good small bank or credit union. 3.75% should be the going rate with great credit that you said you have.

 

[Thump553]

Pulsar: I do closings every day and haven't seen interest rates that high (roughly 4.75%) in at least a year, if not longer-if I see someone with weak credit and needing PMI, the rates are still around 4% or lower.

I think the mortgage broker was trying to shake OP down for a big commission. Bugs me when I see that happen.

Given the totality of his circumstances (selling soon) and reasonbly low present interest rate, I doubt refinancing makes any sense for him in any event.

 

[fallenangel99]

I have FHA and I closed on Dec. 2009 (well before the June 2009) @ 5.125%. I spoke to consultant from https://www.guaranteedrate.com/ , and i was able to get a FHA streamline refi at 3.27% today.

LTV is around 105%, however the consultant used the house purchase price as the value, lowering the LTV to 94%.

With fees and all, the cost is ~$1000 and he said my mortgage company (Chase) will credit some of the fees due to escrow balance (or something.. didn't fully understand).

Anyway, I'm getting all the paperwork so i can review everything.. and see if there are any surprises

 

[OCGuy]

Ehhh...dont even know where to start.

 

[DAGTA]

If you are planning to sell in the next 18 months, don't refi.

 

[ScottFern]

I have FHA and I closed on Dec. 2009 (well before the June 2009) @ 5.125%. I spoke to consultant from https://www.guaranteedrate.com/ , and i was able to get a FHA streamline refi at 3.27% today.

LTV is around 105%, however the consultant used the house purchase price as the value, lowering the LTV to 94%.

With fees and all, the cost is ~$1000 and he said my mortgage company (Chase) will credit some of the fees due to escrow balance (or something.. didn't fully understand).

Anyway, I'm getting all the paperwork so i can review everything.. and see if there are any surprises

Did your PMI double or triple in the quote?

 

[fallenangel99]

Did your PMI double or triple in the quote?

Doubled I think. It definitely went up. In fact, I'm only saving about ~200/month after the refi. Without the PMI increase I probably would have saved around ~400-$500/month. Oh well.

I am glad I took out the FHA loan however. The condo has lost around ~30K in value and i would have lost just as much if I put 20% down payment. I am going to sell the house in 1-2 years so i think it all worked out.