01-16-2014 08:10 AM
So I have a condo I am in the process of refinancing with Penfed on a sweet 5/5 Arm deal they had.
Locked in Penfed - 2.75%
Max Increase/Decrease - 2% or less every 5 years
Max lifetime 7.75%
NO CLOSING COSTS - ALL COVERED BY PENFED
Current Rate - 5.25% - $1,167/mo - 25-26 years left (originally 30 year).
Here is my situation
Ok so my appraisal came in lower than expected.
What would you do?
Loan Amount Left: $191K
Need 80% LTV for no PMI
Considering living in house for 3-4 years more than maybe sell or rent.
$10,000 Cash to bring down LTV
Monthly Payments = $734
Savings = $433 month
WITH PMI At Current Loan Amount
Monthly Payments = $782
PMI = + ~100/mo = $882
Savings = $285 month
PMI Falls off when LTV hits 78%
So. do I stay at my fixed or go with one of the option above?
If one of the options should I then pump the savings back into the loan and built equity?
01-16-2014 09:18 AM
Tough call - how bad will it hurt to be out 10k?
Personally given the parameters provided I would probably hang on to my cash since there is no telling what the market wil do in the time frame you have shared - if it were to go down you could lose that money?
That and you in my mind the monthly savings doesnt justify the big out of pocket cost
In the end you will have to do what makes the most sense to you given your life plans and financial position
01-16-2014 11:47 AM - edited 01-16-2014 11:48 AM
Will not be hurt by the 10K.
Then, IMO, it would be better to put down the 10k to avoid the PMI.
You save $433/mth instead of $235/mth and in 48 months that is $9500+.This calculation doesn't take into account your tax savings. Just calculated the difference in payments only.
Everytime I have a goal to sell in X months (3 yrs, 5 yrs etc) I end up staying longer. No reason, its just that sometimes plans change. Are you likely to stay longer than 4 yrs? If you do, then you are in for more savings and will get beyond the breakeven point. JMHO.
01-16-2014 12:07 PM
I don't think I will stay longer than 4 years however I might rent the house out in the future. Also I don't look at 48 months being really a break even point because that 10K is going directly towards principal and equity. Not like I am really loosing it.
Do you think I should wrap the 433 back into the loan itself to build even more equity?
I could probably put in a Mutual Fund and gain 6+% in a year.
01-17-2014 11:32 PM - edited 01-17-2014 11:39 PM
With that being said should I say screw it, lose the apprisal fee and stay at my current rate?
Then pump that 10K into a mutual fund?
Based on the numbers S10 suggests, you'd need to earn ~17% annually on that 10K (compounded monthly, napkin math) to reach that level of money in the market and historically returns in the market are nowhere close to that (these last few years notwithstanding). I think with the way things may be shaping up over the next year, that you're far better off putting that additional money in equity and take the savings directly, actually I think it's a no-brainer if you include the same level of gain in investing that difference in the market over the same time period.