Refi to drop MIP (but possibly have higher interest rate) or not?

Question

Hi!  New to bigger pockets and would love some advice on refinancing or not...

We bought a $640K Multi Family home in 2012 (north hollywood, Ca) with a 3.5% interest rate, FHA loan.

We refinanced in 2015 and took out 100K which brought us to 709k with a 4.875% interest rate.

We're now at about 680k with a $4800 mortgage, $600 of which is our MIP which I guess we can't drop until 2027 unless we refinance with a conventional loan.  M&T bank used the lock in MIP so we cant remove it even though our house has appreciated over 40% in the last few years.

Should we refinance again to take that MIP off but then possibly have an even higher interest rate OR, just wait till we finish paying that MIP?  We would save roughly 3-500 per month by dropping the MIP, but then lose a few years of paying off the mortgage.

Thanks in advance for reading and maybe giving some advice! :)

Chris Mason · Answer

If you have 20% equity either way, do it in between projects. You don't want the appraiser to show up when the kitchen has been gutted but not re-installed yet.

If you're worried about how much equity you have, wait until after the big non-cosmetic projects are done. You will likely not be getting dollar for dollar back what you put into it, but you will get something.

Jeremy Keeler · Answer

I'm no expert, but the cash you're saving by dropping the note that has the MIP can be applied to paying down the new note. That's one way to think of it, the other way is, (You) aren't paying down the note, your tenants are. Getting rid of the MIP is just a way of increasing your cash flow. Unless you just want to pay the property off so you can get maximum cash flow, paying a tiny bit more on interest doesn't affect you that much.

My 2 cents.

Chris Mason · Answer

4.875% w/ FHA is actually 4.875% plus the MIP, which is typically 0.85%. So, really, you're at 5.725%. Yes, you should probably refinance.

Jaysen Medhurst · Answer

@Lee Hughes, you really need to run the numbers to see what the pay-off period is.

Rate on a jumbo loan is ~4.55% right now, so you're fine rate wise. If you don't take out any cash, you just need to look at your closing costs and how long it's going to take to recoup that. If you're going to save $500/month, I think that will be pretty fast.

If you're worried about extending your pay-off, you could always put that extra money towards the mortgage each month or check out "velocity banking."

Kat Hughes · Answer

Thank you for the replies and helpful tips!  We are most likely going through the refinance and I guess my question is when?  We just updated one of our bathrooms and the garage (turned it into a room) and we have the option to remodel the kitchen and the 2nd bathroom.  Should we wait to refinance after the kitchen and 2nd bathroom have been remodeled, possibly giving us a better appraisal?  If so, how good of a value will the fixes give us?  Or we can just refi now and do the remodels after...

Refi to drop MIP (but possibly have higher interest rate) or not?

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