Advice on Refinancing from an FHA to a 15 or 20 yr Conventional
Naples, FL · Member since 2017 · 7 posts · 4 votes
Hi all - This is my first time posing here, and I'm hoping for some good insight.
I bought a SFH in June with an FHA loan at 2.75% APR. My payment is very manageable at $1,700/month. I've recently reached 20% equity in the house, and I want to get rid of the $206 PMI. This house is currently my primary residence, and I have no plans to move, but I'm still looking to purchase more property.
Below are my refinancing options.
15yr @ 3.75 APR: $2,699/monthy w/3,400 loan costs
20yr @ 3.75 APR: $2,337/monthly w/ $12,800 loan costs
20yr @ 3.99 APR: $2,360/monthly w/ $9,300 loan costs
I understand the basic pros and cons. I like the idea of the 15yr, but I'm not sure if the significant increase in monthly payments is ultimately beneficial. I'm looking to continue to expand my portfolio. Do banks look at 15yr mortgages on existing homes as a positive, or would they rather see a lower monthly payment? Is there anything I'm missing here? Please let me know of any insights you may have into the situation.
I appreciate any help/advice you can provide!
-First Timer
@Jent Botterman To answer your question regarding how a lender looks at a 15 year mortgage as either favorable or not? The only thing the lender gets concerned with is debt ratio. A 15 year mortgage will have a higher payment than a 30 year, so your debt ratio at the time of your next financed deal will be higher with a 15 year mortgage. Why not consider the best rate you can get on a 30 year mortgage. You can also pay extra to essentially turn it into a 15 year mortgage.
Now on the bigger more important question. The rates you are showing there are not the lowest rates you can get. On the 15 year rate, the lender is getting you a rate that has a rebate that can offset your closing costs, which is why your closing costs are showing so low at $3400 dollars. The other 2 rates are slightly bought down rates based on the closing costs they quoted.
So here is the big question and one for you decide for yourself. I am a firm believer in buying the rate down to as low as you can possibly get it. Why, the likelihood of you seeing rates at some time in the future lower than where they are at now, could be rare. I also make sure the payback time (meaning the amount of time to recoup the additional discount points through a lower monthly payment) is between 3-5 years. Its actually less time than that once you figure in the fact that discount points are tax deductible. So your realistic pay back time could be as low as 2.5 years??? If you do that, you can then calculate how much lifetime savings you would get after the pay back time has been completed. The monthly savings X however many months are left on the loan. I just did a rough scenario on a $400K loan and the lifetime savings was over $51,000. Would rather pay all that additional interest?
I would talk to your lender and tell them to quote you the lowest rate you can get in a 15,20,30 year mortgage. Look at the closing costs and then make your decision as to the best loan.
I hope this helps?
Kevin, this is great! Thanks for the insight.
@Jent Botterman To answer your question regarding how a lender looks at a 15 year mortgage as either favorable or not? The only thing the lender gets concerned with is debt ratio. A 15 year mortgage will have a higher payment than a 30 year, so your debt ratio at the time of your next financed deal will be higher with a 15 year mortgage. Why not consider the best rate you can get on a 30 year mortgage. You can also pay extra to essentially turn it into a 15 year mortgage.
Now on the bigger more important question. The rates you are showing there are not the lowest rates you can get. On the 15 year rate, the lender is getting you a rate that has a rebate that can offset your closing costs, which is why your closing costs are showing so low at $3400 dollars. The other 2 rates are slightly bought down rates based on the closing costs they quoted.
So here is the big question and one for you decide for yourself. I am a firm believer in buying the rate down to as low as you can possibly get it. Why, the likelihood of you seeing rates at some time in the future lower than where they are at now, could be rare. I also make sure the payback time (meaning the amount of time to recoup the additional discount points through a lower monthly payment) is between 3-5 years. Its actually less time than that once you figure in the fact that discount points are tax deductible. So your realistic pay back time could be as low as 2.5 years??? If you do that, you can then calculate how much lifetime savings you would get after the pay back time has been completed. The monthly savings X however many months are left on the loan. I just did a rough scenario on a $400K loan and the lifetime savings was over $51,000. Would rather pay all that additional interest?
I would talk to your lender and tell them to quote you the lowest rate you can get in a 15,20,30 year mortgage. Look at the closing costs and then make your decision as to the best loan.
I hope this helps?
@Jent Botterman To answer your question regarding how a lender looks at a 15 year mortgage as either favorable or not? The only thing the lender gets concerned with is debt ratio. A 15 year mortgage will have a higher payment than a 30 year, so your debt ratio at the time of your next financed deal will be higher with a 15 year mortgage. Why not consider the best rate you can get on a 30 year mortgage. You can also pay extra to essentially turn it into a 15 year mortgage.
Now on the bigger more important question. The rates you are showing there are not the lowest rates you can get. On the 15 year rate, the lender is getting you a rate that has a rebate that can offset your closing costs, which is why your closing costs are showing so low at $3400 dollars. The other 2 rates are slightly bought down rates based on the closing costs they quoted.
So here is the big question and one for you decide for yourself. I am a firm believer in buying the rate down to as low as you can possibly get it. Why, the likelihood of you seeing rates at some time in the future lower than where they are at now, could be rare. I also make sure the payback time (meaning the amount of time to recoup the additional discount points through a lower monthly payment) is between 3-5 years. Its actually less time than that once you figure in the fact that discount points are tax deductible. So your realistic pay back time could be as low as 2.5 years??? If you do that, you can then calculate how much lifetime savings you would get after the pay back time has been completed. The monthly savings X however many months are left on the loan. I just did a rough scenario on a $400K loan and the lifetime savings was over $51,000. Would rather pay all that additional interest?
I would talk to your lender and tell them to quote you the lowest rate you can get in a 15,20,30 year mortgage. Look at the closing costs and then make your decision as to the best loan.
I hope this helps?
@Kevin Romines - You were so helpful when I refinance my primary residence in Florida. I thought I'd come to you directly before posting in the Forums.
This question is multi-faceted. So, I apologize in advance for the barrage of questions; I'd love to hear your take.
I have a SFH in Indiana, free and clear, that rents for $1,200/month. It has never been vacant. Before the interest rates make another jump, I want to do something productive with the equity in the house.
My initial thought was to use the equity to expand my FL portfolio and upgrade some features on the current house in IN. I also want to put the property into an LLC, but I've recently considered using the equity to pay off some personal Debt.
Regardless of what I do with the equity, my first question is whether a HELOC or an equity loan would be the best option?
What are the pros and cons of using a HELOC or equity loan?
If I put the house into an LLC, will I be able to refinance or get a HELOC right away? Will this help me build business credit?
If I put the house into an LLC, will I be able to use the equity (from a HELOC or equity loan) to pay off personal debt, or would that be considered taxable personal income?
I understand the credit and tax implications might not be your expertise, but any advice/insight is greatly appreciated.
Thanks in advance, Kevin. I look forward to hearing from you.
Best,
A Puzzled Young Entrepreneur