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Should I Refinance?

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tim2
Contributor

Should I Refinance?

I am considering refinancing my mortgage to eliminate the MIP I am currently paying.     Below is the info on the existing and new mortgage.

 

 

Original Purchase Price:  $265,000

Current Balance:  $243,742

Current Interest Rate:  3.875%

Current Loan Type:  FHA

Loan Orig Date:  04/17/2012

 

Principal & Interest:  $1,214.54

Homeowner’s Insurance & Property Taxes:  $473.48

MIP:  $233.91

Current Total Monthly Payment:  $1,921.93

 

 

Current Escrow Balance:  $1,898.32

 

Since this is an FHA loan the MIP will not drop until the balance is 78% of original loan.    Paydown needed $37.042.    ($265,000 * .78 = 206,700    >>>  $243,742 - $206,700 =  37,042)

 

 

 

 

 

 

Proposed Refinance:

 

New Loan Type:  Conventional – 30 year fixed 

Approximate Closing Costs:  $3,940.00

Approximate Cost of Prepaid Interest and Escrows:  $3,860.75

Total Approximate Cost of Settlement Charges:  $7,800.75   (Mortgage company says this will likely be much less at closing due to being an estimate of escrows.   Also, I should get a refund of escrow from from current mortgage company of $1,898.

 

Interest Rate:  4.125%

 

Principal & Interest:  $1,197.09

Homeowner’s Insurance & Property Taxes:  $413.85

MIP:  $76.16

Current Total Monthly Payment:  $1,687.10

 

MIP will drop automatically once balance drops to $234,000 – paydown needed $9,743.

 

Then monthly payment will drop to $1,610.94.

 

The proposal they sent me includes a refinance amount of $247,000 vs an actual current balance of $243,742.    So they have rolled some of the closing costs into the new loan balance in this scenario.  

 

 

 

I am disappointed that I can't completely eliminate MIP but would I still be better off refinancing in this situation since I can drop MIP once my balance is paid down a little more?

 

Any advice is appreciated.

Message 1 of 12
11 REPLIES 11
Lemmus
Established Contributor

Re: Should I Refinance?

...why does your T&I decrease by $60 a month after the refinance? ...the taxable house value hasn't decreased and your mortgage actually increased ...just curious, not something I'd expect to change because of a loan refi Smiley Surprised

 

...is that rate locked? ...the rates appear to be rising quickly and the numbers are marginal as it is.

 

...bottom line, if its really (count me sceptical re LO estimates) $5k out of your pocket now, is it worth it to you?


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Message 2 of 12
tim2
Contributor

Re: Should I Refinance?

The  T& I is an estimate.   That's why it's not the same as current.   Could go up.

Rate is locked.

What's worth it to me is the fact that the monthly payment will drop by $230 a month.   Will drop an add'l $70 per month when the PMI drops.   Based on the fact that I have to pay down the originial mortgage by another $30k and wait another 2 years before I can drop the $230 a month in MIP it seems like it will be a while before I am down to the monthly payment for the refi.    I will have to pay $1,920 a month for about another 5 years before I can get the balance down to 78% of original balance.

Message 3 of 12
Lemmus
Established Contributor

Re: Should I Refinance?

...if you can nail those numbers down, seems like a decent move on your part ...good luck


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Message 4 of 12
disdreamin
Valued Contributor

Re: Should I Refinance?

OP, when I run  a quick back-of-the-hand calculation to see where you come out long-term, the refi doesn't seem to make sense if you're trying to save in overall cost. It seems like staying in your current loan makes the most sense, if your goal is to pay off your home spending the lowest amount possible. If your goal is just to lower your montly payment, with no eye toward how much the loan will cost over the life of the loan, that would be the only reason I could see to do the refi.

 

Assuming 27 years remaining on current loan, 5 years at the higher payment (~1922) and 22 years at the lower payment (~1690) it comes out to $561,480 over the life of the loan.

 

Running the same calculation for the refi, assuming 1.5 years at the higher payment (~1687) and 28.5 years at the lower payment (~1611) it comes out to $$581,328 over the life of the new 30-year loan.

 

The above does not take into account any money you have to bring to the table, and it's not accurate as far as how long it would actually take to pay down your proposed refi loan to lose MIP (I just did a reduction of x% of the original loan amount and used that percentage of the loan term as my basis for the quick calc...it'll actually take longer than my estimate to pay the loan amount down to where you can drop MIP on the refi, I believe, due to compound interest).

 

FWIW, another way to look at this is that the three additional years of payments on your new 30-year loan (at the lower payment amount) will run you around $57,966 which would pay your current MIP for a very long time.

 

Even if you assume the new T&I is $60 less, as a PP noted, the loans are a complete wash long-term cost-wise. You'd still be out any money you need to bring to the table for the refi. I don't see any savings here that makes a refi worth it.

;; 

Message 5 of 12
StartingOver10
Moderator Emerita

Re: Should I Refinance?

I came to the same conclusion as disdreaming, but through a different process. Your cost to close your refi will eat up quite a bit of your projected savings. You only have $9743 to pay off on your current loan to get the MIP to drop off automatically and your interest rate is good. 

 

If it were my mortgage, I would look to find the $9743 extra to pay off asap so your MIP drops off automatically. You have one of the good mortgages - leave it alone and work with what you have in hand. There are all kinds of places to find the extra $10k - sell things around the house, pick up a second job temporarily, etc. Get creative. Keep this loan and work with it. JMO.

 

 

Message 6 of 12
tim2
Contributor

Re: Should I Refinance?

Actually in the current loan I have to pay $230 a month in MIP until I pay down the loan to $206k which means I have to pay down the loan another $36k.    Orig loan was for $265k.  With FHA loans you have to pay MIP until you pay down the mortgage to 78% of ORIGINAL loan amount.  (Must pay for a min of 5 years)  The value going up doesn't affect it at all.

 

In the refi scenario I pay $76 a month in MIP until the value goes up or I pay down by about $10k.   

Message 7 of 12
flan
Regular Contributor

Re: Should I Refinance?


@disdreamin wrote:

OP, when I run  a quick back-of-the-hand calculation to see where you come out long-term, the refi doesn't seem to make sense if you're trying to save in overall cost. It seems like staying in your current loan makes the most sense, if your goal is to pay off your home spending the lowest amount possible. If your goal is just to lower your montly payment, with no eye toward how much the loan will cost over the life of the loan, that would be the only reason I could see to do the refi.

 

Assuming 27 years remaining on current loan, 5 years at the higher payment (~1922) and 22 years at the lower payment (~1690) it comes out to $561,480 over the life of the loan.

 

Running the same calculation for the refi, assuming 1.5 years at the higher payment (~1687) and 28.5 years at the lower payment (~1611) it comes out to $$581,328 over the life of the new 30-year loan.

 

The above does not take into account any money you have to bring to the table, and it's not accurate as far as how long it would actually take to pay down your proposed refi loan to lose MIP (I just did a reduction of x% of the original loan amount and used that percentage of the loan term as my basis for the quick calc...it'll actually take longer than my estimate to pay the loan amount down to where you can drop MIP on the refi, I believe, due to compound interest).

 

FWIW, another way to look at this is that the three additional years of payments on your new 30-year loan (at the lower payment amount) will run you around $57,966 which would pay your current MIP for a very long time.

 

Even if you assume the new T&I is $60 less, as a PP noted, the loans are a complete wash long-term cost-wise. You'd still be out any money you need to bring to the table for the refi. I don't see any savings here that makes a refi worth it.

;; 


This analysis is spot on, as far as it goes.  There is one way you come out ahead, which is by taking the $160 or so your payment will drop (your taxes and insurance will not change, and they're pretty silly for not using the actual figures, since they're available.), and paying that as an extra payment towards principal each month.  That will let you pay the loan off about 6 years early.  If you add the PMI payment to the payment once it drops off (in 2017, under the accelerated payment schedule), you'd be paying if off about 9 years early.  Paying it off six years early saves you 6 years of principle and interest payments, three years compared to the current loan.  3 years of 1200 a month payments is $43,200, six (adding the pmi payments gets you this) is $86000.

You'd need to run the exact numbers through to check my math, but that's the only way this saves you money in the long run.  Of course, if you won't pay the extra each month, there's no savings.  

I'd take the trimerge report they ran to another lender, and see what their offer, I don't think this is the best you can do.

Message 8 of 12
StartingOver10
Moderator Emerita

Re: Should I Refinance?


@tim2 wrote:

Actually in the current loan I have to pay $230 a month in MIP until I pay down the loan to $206k which means I have to pay down the loan another $36k.    Orig loan was for $265k.  With FHA loans you have to pay MIP until you pay down the mortgage to 78% of ORIGINAL loan amount.  (Must pay for a min of 5 years)  The value going up doesn't affect it at all.

 

In the refi scenario I pay $76 a month in MIP until the value goes up or I pay down by about $10k.   


^^^No, that isn't correct. At 78% the MIP drops off automatically.  You can request the lender to drop off MIP at 80% LTV based on original loan amount. They won't approve it if there have been mortgage lates. I assume you have had no lates.  The lender still has to have an appraisal completed to make sure market value hasn't decreased. And yes, 5 years is accurate. 

 

So the new target is $212k.  These requests are routinely approved at 80%. You are already 3 years in - two years to get the balance down to $212k. Bet you could come up with a method to get it done within the next 2 years.

Message 9 of 12
tim2
Contributor

Re: Should I Refinance?

78% or 80% -   the MIP drops.   Either way it's going to take quite a few years to pay it down to that amount.    And that means paying the $230 a month for a few more years.

 

 

 

And yes - I was thinking the same thing.   Taking that extra money and paying it towards principal each month.   

Message 10 of 12
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