Help! Worth refinancing investment before rates go back up?

Question

Hello!

I've been a member on the forum for sometime, often just reading through answers and ideas. I currently (since 19') have an investment townhome in WV panhandle. I see rates are still pretty low and wanted to take advantage of them before they went back up. I plan to hold this long term (years). It was built in 1993 and recently upgraded cosmetically and a newer roof added. Below is the current offer I'm looking at and where I'm sitting at currently. I'd like to get rid of the PMI (wasted money) and increase the cashflow potential.

Current - Zillow estimate ($162K)

Loan amount was $110,925 @ 5.25% over 30 years. Payment w/PMI/escrow total is $760.55. PMI alone is $48. $108,454 left on the loan.

Considering

new Loan of $114,500 @ 4.875% over 30 years. Pts ($2,792). Payment total (escrow/NO PMI) is $ 707. Closing costs rolled into loan $6032.

Now obviously this would increase my cashflow immediately but would add a considerable amount to the loan itself. I calculated it would take 8.6 years to recoup the closing costs. The current lender wants 65% LTV with a appraisal before dismissing the PMI.

So ANY opinions, ideas, thoughts from someone whose been at this longer than myself? What would you do? Thanks in advance!

Jessica N Sites · Answer

@Andrew Postell @Jeff T. #2 was the correct choice! I used Bankrate and got linked up with Better. They are offering a MUCH better package. 3.625% rate with APR of 3.81% Total closing of $4539 but payments dropping from $769 to $603.

ALWAYS ALWAYS shop around!!! Thanks for the responses

Andrew Postell · Answer

@Jessica N Sites wow, that's absolutely insane that they would require 65%.  Do you feel your property would be worth $167,000?  If not, then do the 2nd option....shopping with another lender to get a 2nd opinion.

Jessica N Sites · Answer

Ok! Thanks @Andrew Postell for giving me your ideas. I did reach out to the lender "Home Point" and tried the 1st option you recommended. They responded with a letter. I copied the relevant parts for anyone who may have the same questions!!! But being an investment loan they require more equity than 20%. Did you have an opinion on the cashflow aspects of getting rid of the PMI now vs. later?Freddie Mac is the investor on the account, and it offers two methods to determine whether PMI may be cancelled. One method (“Original Value”) compares the outstanding balance of the account against the original value of the property. The other method (“Current Value”) compares the outstanding balance of the account against the current value of the property. Under either method, the account must be current and there must be a good payment history (i.e., no payment was 30 days or more past due within the past 12-month period or 60 days or more past due within the past 24-month period).

Original ValueBecause the account is secured by an investment property or two to four-unit principal residence, it may be eligible for PMI cancellation if (1) the current value of the property is at least equal to its original value, (2) the LTV has reached 65% of the property’s original value, and (3) the current value of the property is verified by a broker price opinion (“BPO”) that is ordered, and directly received, by Home Point. At this time, you have an LTV of 83.53% based on the original value of $130,500. You will reach 65% LTV once your principal balance is equal to or less than $84,825.

Current ValueBecause the account is secured by an investment property or two to four-unit principal residence, it may be eligible for PMI cancellation if (1) at least two years have elapsed since it originated, (2) the LTV has reached 65% of the property’s current value, and (3) the current value of the property is verified by a BPO that is ordered, and directly received, by Home Point. Based on your current principal balance of $109,001.01 the property must appraise at approximately $167,694 to reach the required 65% LTVRegardless of when the account originated (even if it was less than two years ago), it may be eligible for PMI cancellation if (1) substantial improvements have been made to the property that have increased its value, (2) the LTV has reached 65% of the property’s current value, and the LTV is confirmed by an appraisal that is ordered, and directly received, by Home Point and that is completed after the relevant improvements have been made.

Jeff T. · Answer

@Jessica N Sites

I think that rate is high, I’m refinancing 2 rentals now at 3.625% or less with similar numbers.

Try bankrate.com to find a lender (careful they will spam you with stuff if you fill all the info out, just contact the lenders listed directly) or call around, call mortgage brokers. I think you can do better.

Good luck.

Andrew Postell · Answer

@Jessica N Sites Ok, and I see that you did mention that previously.  So here's the recommendation I would have:

The total monthly savings between the two options here is $53.  However, $48 alone represents the PMI.  So essentially the REFINANCE savings is $5....that's it.

I would recommend two things:

• Reach out to your current lender about removing the PMI.  Make sure you speak with someone with authority when you call.  If you are in a Fannie/Freddie loan, the PMI will go away eventually.  The lender MIGHT use the initial value though...and if that is the case then you would need to pay for a new appraisal to validate that you have 20% equity.  Cost might be $450-$600 depending.  So saving $48 for $600 is A LOT better than saving $53 for $6,000.  Try this option first.
• The other recommendation I would have it to ask around to some other lenders.  I would guess that a single family rental property, with reasonable credit, would have a lower rate and less points.  But the only way to know for sure is to shop around.

Anyway, I hope that all makes sense.  Feel free to ask anything else if you need.  Thanks!

Jessica N Sites · Answer

@Andrew Postell

Hi, Andrew the $707 number is the total payment with escrow and everything (insurance,taxes, etc.). You are correct the P &I would be $605. Currently it's $612 so not a huge difference. Thanks for letting me clarify.

Andrew Postell · Answer

@Jessica N Sites something isn't adding up here.  A $114k loan @ 4.875% over 30 years = $605 payment...not $707.  You sure that's the numbers that the lender provided?

Help! Worth refinancing investment before rates go back up?

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