Should I or should I not Refi??

[Ricardo Flores]

Hey everyone,

I have a few questions, hoping someone can answer. I've been looking into refinancing my primary home to remove the PMI on my FHA loan. Can someone let me know if this is still possible, even with the rising interest rates? They way I calculated the numbers, I would save around $50 monthly. What type of credit score would help reduce the interest rate. I know 740 would be great, but im roughly in the 690-700's.

Below are my numbers..

Home value roughly 470k-480k

Outstanding loan 338k, 28 years to go

Current Interest Rate 3.75%

monthly payment $1,615 without taxes and insurance. 

PMI monthly payments $235

Any info will help.. Thanks in advance.

[Jordan Decuir]

@Ricardo Flores I am by no means a mortgage professional so please bear that in mind. From what I’ve gathered from mortgage folks that I’ve known over they years, generally speaking, 740 should get you the best rates, and each 20-point incremement below that may get you a slightly-higher rate (1/8th of a percent or so for each 20 point drop). This is the way that I understand it but I’m sure each case and lender can differ and markets tend to be fluid over time as well. Based on your numbers, it looks like your LTV would be roughly 71% if the home would appraise for $470k, so you may be able to get rid of the PMI based on that fact alone by speaking with your current lender and being willing to pay for an appraisal. If I were you, I would check your current loan doc’s, and call your current lender and see if you can get an appraisal to wipe away the PMI because your LTV is significantly lower than what is required, probably 80%. Hope this helps. Best of luck to you.

[Londell Reedman]

im not sure about fha loans but I think your loans amount has to be paid down 20% to do a refi and go conventional. your kind of lucky you bought when interest rates was low, but by you getting a refi you want have any pmi

[Ricardo Flores]

@Jordan Decuir I've never heard of the mortgage companies wiping out the PMI just by asking. Maybe I'll try that.

@Londell Reedman Yes interest rate was low. Which is why I jumped into the loan to secure it. But since then interest has shot up very quickly. Which is why I’m now rethinking the Refi. 

[Melvin List]

@Ricardo Flores depending on how long you are going to stay in the home I might stay with what you have if you are only saving $50 a month.  Your rate will be higher now going conventional so I don't think I would $50 savings will be worth the closing costs you will pay.

[Vijaianand Thirunageswaram]

@Ricardo Flores if you are refi just to remove PMI, you don't have to. You just need to request your servicer to remove PMI and they will do it if the numbers are good and you can show the proof/evidence for your appraisal value. There is process so call your servicer or mortgage company. Don't lose your low interest rate by refi.

[Ricardo Flores]

Thanks @Vijaianand Thirunageswaram I will give them a call. 

[Anthony Wick]

@Ricardo Flores

When did you get your FHA Loan? Rules have changed. Your PMI (MIP actually) never goes away with FHA loan now. You have to refinance in order to drop MIP. And at 3.75%, you may not save much at all, so it may be best to keep paying your current loan as is.

[Chris Mason]

Hi @Ricardo Flores,

On a 2 year old FHA loan with 3.5% down initially, the mortgage insurance never drops off and is there for the life of the loan. Some of the folks above are reciting what they were told about conventional (non-FHA) mortgages.

Your FHA mortgage insurance rate is 0.85%, added to your nominal interest rate of 3.75% that puts you at 4.6% effective interest rate. So that's the number to beat.

With a 690 FICO score, 4.6% is not really available in the current market.

No reason to refinance since it wouldn't lower your rate or have any significant impact on your payment, and don't bother calling the loan servicer unless you want to get pitched on a refi that does not make sense.

The good news is that your financing, even with the mortgage insurance, is better than the financing all of your new neighbors are getting, even the ones putting 20% down.

If you've got the urge to "do something," go get a 90% CLTV HELOC and leave the balance at $0. Boom, now you've got the better part of a down payment for when/if a good deal crosses your desk.

[Ricardo Flores]

@Melvin List  I agree. This is why I have been hesitant on proceeding with the refi. I'm planning to keep the home for a future rental. Maybe pull money out and purchase another. 

Just that the extra 235 could be going to principle instead of PMI.

[Ricardo Flores]

@Anthony Wick 2 years ago,  Thanks.

@Chris Mason Thanks for the advice. I know the refi is looking worse and worse as the days go by. But you are defenitley right about the HELOC. Be ready for the next move.

Thanks everyone for your input. Just that being new to the real estate game has me second guessing every move. 

Happy Friday Jr,

Rick 

[Michinori Kaneko]

you probably can't pull out any money because of your LTV. well maybe you can a little, but probably not worth the cost you incur on your closing, and effectively you are increasing the interest rate you have on your loan by doing that. I think your current effective interest rate (inclusive of PMI) is around 4.5% (just a rough calc) so it wouldn't make sense for you to refi either. Note you are getting a tax benefit from paying interest though too, so don't forget to include that in your analysis!

[Ricardo Flores]

@Michinori Kaneko I believe PMI is still a deductible in 2018, but starts to phase out at $100k and gone by $109k. I just have to figure how to get my AGI below $109k. LOL.

[Joan-Marie Pagan]

@Chris Mason That last paragraph had my notepad out lol thanx !!

[Joan-Marie Pagan]

@Ricardo Flores What’s AGI?

[Caleb Heimsoth]

@Joan-Marie Pagan adjusted gross income

[Ricardo Flores]

@Joan-Marie Pagan Yes your Adjusted Gross Income. lol tax talk.

[Ashish Acharya]

@Ricardo Flores , 

Your PMI never goes away with FHA loan even after you make 80% LTV payment. You will have to refi. Make sure you understand the implication of the Refi. I did a rough calculation below as I do not know the deal.

I assumed your purchase price so that your pmt comes out to be around 1.6k each month.  Ignoring the cash flow impact, looking like you will get 17k cash out with the refi. 

Your monthly pmt will go up to 1889 with no PMI. ( assumed your new interest rate will be 4.2%) . You can do new cash flow analysis with that number.

Basically, you dont have extra 17k cash with no PMI after refi. See below. Yes your interest rate will go up.

[Ricardo Flores]

@Ashish Acharya thanks for the quick numbers check. I like the spreadsheet. Where can i find something like this?

[Ashish Acharya]

Originally posted by @Ricardo Flores:

@Ashish Acharya thanks for the quick numbers check. I like the spreadsheet. Where can i find something like this?

 Evaluatedeals.com

Good luck. 

[Prashant Sheth]

@Ricardo Flores I had my loan w Wells Fargo. And when my equity got to well above 20% they cleared the PMI automatically. Just ask. It works