Mortgages/Refi/FHA/Conventional- What's best?

Question

I have a condo in South Carolina that I got a mortgage in 2011 (ish) for $125K. It was sold to Wells Fargo and a 5% interest rate.  (FHA loan). I called today and paid off $8K which took the PMI off the loan. I now owe about $98K.

Should I refinance this to a conventional loan or leave it now that the PMI is off?

My financial goal with this property is to pay the mortgage payment and use any rental income off this property and my other property to pay this loan down as fast as possible.

Any suggestions on best steps to achieve these goals?

I am not sure paying off the PMI was the best decision and would love some advice!

Thanks in advance!

Kristen Chapin · Answer

ok not sure why she suggested that. I will just work on paying it off. Thanks for your input!

Kerry Baird · Answer

If your goal is to pay it off, why not just...pay it off?  If you refinance a reasonable interest rate, such as a 5%, you will pay closing costs, origination fee, appraisal fee, recording documents and so forth.  You will also reset the amoritization on the mortgage, which is to say that you pay more interest in the beginning of the loan and more principal as you move along in time.  So you reset that payment schedule.   I can’t see a benefit to you in doing a refinance, given your goal to pay the mortgage off.

Kristen Chapin · Answer

thank you!

Harjeet Bhatti · Answer

@Kristen Chapin  The interest rate is in same range right now for investment property. I don't see any reason to refinance and waste in closing cost.

Christopher Giannino · Answer

I'm a relatively new investor so please take what I say as a grain of salt but it *potentially* could be worthwhile to refi in order to achieve more cash flow.  You said you originally received a mort. for $125,000 at 5%.  If that is truly the case, according to mortgage calculators your monthly P&I payments are probably around the $670/month.  Now that you have over 80% LTV, you could potentially refinance out and reduce your monthly P&I payment.

Let's assume your condo still will only appraise for $125,000.  80% LTV of $125,000 puts you at a maximum Convention refinance loan of $100,000.  Now let's say you can get a conventional loan for $100,000 with an interest rate of 5.25%, your monthly P&I would reduce and now be around $552.  Even though your interest rate went up, your monthly payment went down by $118 because the entire loan is based off a lesser amount.  You'll now have an extra $118/month of cash flow which you could use to help pay the loan even further ahead.

There are a lot of IFS in this scenario so just make sure you run the numbers.  What happens if the loan interest rate is higher?  What happens if the condo appraises for less?  Also, just know by refinancing it will cost $$ for closing costs so make sure to include that into your calculations.

Kristen Chapin · Answer

hi! I had the loan before they started doing it for the full term of the loan. Just had to pay it down to 80 percent to get it off. Someone recommended I refinance but I don’t understand why. Thanks for your input!

Steve DellaPelle · Answer

@Kristen Chapin I was under the impression that MI on the FHA loan could only be dropped if you refinance into conventional? If you are still on an FHA loan with no insurance then you are in a good position. I would only refinance to conventional if you wish to use FHA again on your next purchase!