Dropping PMI with a higher interest rate

7 Replies

Hello

Need some advice about dropping PMI ($140). Quicken Loan called me and told me that they can can pay for my PMI because of my 820 credit score but my interest rate will be .5 higher. (My balance is not getting down to 80 or 78 percent rule yet)

I need to put down $500 deposit but will be returned upon closing. No other fees. They will pay for the appraisal. 

My current interest rate is 4.375%. The new interest rate would be 4.87%

Should I do it? They have been calling me day and night for this and I don't have time to think it through yet. 

Thanks 

Chi

what would be the differnce in payment? How long would it take you to have 80% ltv? Compare these numbers and I suspect it is not a good deal 

Hi @Quynh-Chi Nguyen

There are some financial gurus here who will be able to run some real numbers with you and figure it all out.

In my opinion though I would say the following next time they call.

"Oh hey, thanks for the call, Yeah I thought about it and I really can't see refinancing to a higher interest rate, sounds a whole lot like a short time gain for a long time loss to me. I think I am just going to wait until I hit the 80% rate so I can drop the PMI and stay where I am or refinance to a lower one at that time. Another guy called and he said based on my high credit score and low risk, he could move me into a 3.85% rate for 30 years so I might wait to see what he has to say, thank you so much for the call though I really appreciate it."

You can always pay the PMI in full at closing. Doing it this way is cheaper than paying it monthly for the next 10 years. We just did this a year ago on our primary residence.

@Quynh-Chi Nguyen  There is no free lunch. Instead of you paying the PMI (monthly) they will do a lump-sum payment and are charging you for it with the higher rate. So guess what, you are still paying the PMI. If you really want (and can afford it) you can always refi and do a upfront PMI payment and still get a lower rate.

With regards to a deposit. That's just dirty tactics. My understanding of the new TRID regulations was that NO fees can be collected until after the disclosure documents are sign. So Quicken might be running a muck with CFPB.

I would run away from Quicken and while you are at it report them to CFPB.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

I completely agree with Upwn. The only winner in this deal is Quicken. Your cost of debt goes up (the PMI is still there. It's now just converted to interest rate and is there for the life of that loan.) In addition, there will be other 3rd party costs. Lastly, TRID effective,10/3/15 prohibits fees of,any kind until the initial disclosures are sent to, signed by and returned by the borrower. One of these disclosures is an Intent to Proceed form. When the lender gets that back signed, tgen they can start the loan. I would not use Quicken Loans. In your case, the loan you have is better than the one they are offfering you anyway.

What they're offering you is called Lender Paid Mortgage Insurance or LPMI, in which they pay the PMI for you in exchange for a higher interest rate.

Whether it's worth it or not depends on how close you are to 80% LTV and how long you plan to own the home. Mortgage insurance is currently tax deductible, although that may change very soon. Mortgage interest will likely remain tax deductible for a long time.

Regardless, I would not pay a fee for this. Also, I think the interest rate increase is too high at .5%. I know lenders that offer LPMI for .25%.