To Refi or Not to Refi

12 Replies

Hey everyone!

Here's the deal. I have looked all over and crunched the numbers and wanted to see what the overall consensus is on a FHA to Conventional loan to get PMI removed. Since I put less than the required amount to get PMI dropped off, the only option is to refi into a Conventional. I know all this is subject to an actual Mortgage rate and appraisal, yet, here we go...

Property was bought in Sept of 2015 in Southern California and is house-hacked with two of the 4 bedrooms rented out as I live in the master. That brings in $1100 per month.

Current loan: $188,000 / Owed: $181,000 / Monthly payment is: $1340 / Although I pay into it $1500

Originated 07/2017 / Rate 3.75% / PMI = $122 / Credit 740+ / Previous Appraisal $197,000 / Current Comps $220,000

I ran the whole "Should I refi equation"

(Old Rate – New Rate) /12 x Amount Owed / 100 = Monthly Savings

And figuring a New Rate of 4.25 I got about -$75. If I did refi and drop PMI ($122) would that go against the -$75? Therefore even though it is a higher rate I would actually be saving roughly $50 per month.

Let me know what you guys think!

- Chris

@Chris G. I didn't see the costs for refinancing, but I'd factor that in too. 

Good catch @Paul Defngin ! Thank you.

So I'll figure worst case $5000 in costs and fees and a rate of 4.25%

Using: (Old Rate – New Rate) /12 x Amount Owed / 100 = Monthly Savings

(3.75-4.25)/12 x $181,000 / 100 = -$75

A new loan would increase by the $75 but would drop the $122 PMI. Saving $47 per month.

$47 x 12 months x 30 year loan = $16,920 in total term savings

So I would say it would be worth it to refi... Right?

Keep in mind that you will have to re-fi with 20% equity to drop PMI, so to get the new $181k loan, the property would have to appraise at $217k

@Chris G. you don't need 20% equity to not have MI.  You can have a lender paid MI option if the appraisal come back low

Yea thank you @Jason DiClemente !

Even with that and the numbers it looks like I would have to pull off a 4.0% rate. That would allow enough term length savings to pay into the principal to get that 20% equity. If worst case it appraised for purchase price of $197,000

(3.75-4.00)/12 x 181,000 / 100 = -$37 + PMI $122 = Monthly Savings of $85

$85 x 12 x 30 = $30600 - $5000(fees) - $20,000 additional principal = Total savings $5600

So then the final question... at 4% and an appraisal of $197,000

Do I refi to get rid of the PMI saving about $100 a month after spending $25,000?

Or use $25,000 to invest? 

@Melvin List , I like the sound of that as another possible option. I will look into that. Thank you!

You are adding 2 more years in this refinance.

@Chris G. , okay. I think I followed your break down above...I think. Refinance at cost of $5000. Check. Drop MIP of $100. Check. Save $47. Check. Would I do it? Personally-no. Paying $5000 closing costs to save $47 a month is not IMHO worth it, but that's just me. $5000/$47 - break-even a little over 106 months or just shy of 10 years. My dollar today is worth more to me than in the future. I'm not saying it's not right for you, but personally, I would not.

@Chris G.

One more option: Get an unsecured personal loan at an amount that would bring your mortgage down to 80% LTV, paydown your mortgage, and remove PMI.

Depending on the terms you are able to get the overall monthly payment obligation will probably end up higher though it seems like you currently have a cushion so that may not be a problem. Upside is your monthly payments now go to equity instead of a PMI company (because you paid down the mortgage with the personal loan) and you keep your 3.75% mortgage in tact.

This assumes you can obtain a loan in that amount (could be from any source), your mortgage has no prepayment penalty, and your lender confirms cancellation of the PMI with paydown.

@Kiley Nakamura since @Chris G. took out an FHA loan, MIP is not cancellable unless he had put down 10%. In which case, it gets cancelled after 11 years and be at 78% loan to value or paid the loan down to gain 22% of the original sales price. Good thinking, but FHA changed that policy some years ago.

Hi @Paul Defngin !

I'm a bit confused.  

It sounds like you are saying that because @Chris G. didn't put down 10% at closing, MIP is non-cancelable and will apply until the loan is paid off entirely.

EDIT:  I misinterpreted.  Thank you for your explanation @Paul Defngin!  

@Kiley Nakamura@Paul Defngin is correct. I unfortunately did not put enough down to get that MIP to be cancelled automatically from the FHA loan.

Thank you everyone for the input!

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