Mortgage Refinance?

[prabs99]

I have a FHA mortgage that is 4 years old. I owe 214K on it. The interest rate is 4.5%. The value of the home is 235K. Can I refinance it? What are my options?

Thanks for you help.

1. Credit.  766 (Disc) 06/15/2014
2. Income.  96K
3. Source of income.  Employment
4. Monthly debt payments.  11% DTI
5. Employment 7 years, W2
6. Assets/Reserves.  6K
7. Location.  WA State, Benton County
8. Property.  Single family house, 
9. Value.  235K
10. Occupancy.  Primary residence
11. Transaction Type.  Refinance

[TheGardner]

I am not an expert but I don't think a refi will help you. Without 20% equity you will not avoid PMI. Right now you have 20k equity a large part of which will be lost to closing costs. What's the purpose for the refi?

[ShanetheMortgageMan]

You could refinance into a new FHA loan and get a lower interest rate, but the mortgage insurance would now be for the life of the loan (whereas currently it will drop off after at least 5% years and when you pay your mortgage balance down to 78% of the value at the time you got the loan).  You could refinance into conventional and get a similar interest rate, and pay .59% per year in mortgage insurance (assuming a 760+ score)... but I believe your mortgage insurance is being calculated at .50% per year if you got the mortgage between 4/5/10 & 10/4/10.

[prabs99]

JUst for my clarification, if the loan value drops below 78%, I wont be paying the PMI, but if I refinance using FHA now I will be paying PMI for the entire loan. I dont mind waiting a few more years. Thanks for you help. Is a fixed rate or ARM better over the long run? 

[ShanetheMortgageMan]

That is correct, new FHA loans now, with loan-to-values over 90%, will pay PMI for the life of the loan.

We are in a time where interest rates have remained low for an unprecedented amount of time, so historically I'd say a fixed rate is better in the long run... but if someone got an ARM back in 2003-2004 they would've done better than someone who got a fixed rate back then.

[prabs99]

Thanks for your help.