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FHA Mortgage - Mortgage insurance - Refinance or other options

Peter1142
Established Contributor

FHA Mortgage - Mortgage insurance - Refinance or other options

I have an FHA loan that I have had for 5 years now. I closed with 3% down in 2014, which resulted in a yearly FHA MIP of 1.35%. They have since slashed rates for new borrowers, but I am left with this high payment that is currently at $230/month.

 

Since I have closed the home value has increased substantially, and with the payments I now have 33% equity in the house, I also got a low appraisal due to the specific comps available at the time I purchased, and was able to get a great deal when I bought the house.

 

I did get a great rate - 3.75%, but this MIP is such a waste of money. They have since lowered the FHA premiums, but only for new mortgages. I have paid to date someodd $17,000 in mortgage insurance for this home and have not missed a single mortgage payment.

 

Do I have any options besides refinancing into a conventional loan? I have looked into this recently, and it seems like it would cost between $5,000 and $8,000 to refinance (located in New York). Between that, the slight increase in the rate I would get, and the reduced principal payments of a new 30 year loan, it would take me 4 years just to break even on the costs, without even comparing the increased interest, which doesn't seem to make sense to me unless I was 100% positive I would be here for another 20 years, which I am not. Finances are tight and I would love to lower my monthly payment, but not at a cost of tens of thousands in lost equity, it doesn't seem to make financial sense.

 

Does anyone have any advice? Can I petition FHA or my Congresswoman or something, or would that just be a waste of time? Is there any other types of refinances available? Should I just wait until I can afford to refinance into a 15 year loan or something? Mortgage rates are still so low and they can't stay this way forever.

Message 1 of 10
9 REPLIES 9
CreditInspired
Super Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options

Check into FHA streamline refinancing. 

https://www.fha.com/fha_streamline_refinance


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Message 2 of 10
Peter1142
Established Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@CreditInspired wrote:

Check into FHA streamline refinancing. 

https://www.fha.com/fha_streamline_refinance


I'm not sure I understand the streamline refinance, doean't it not only not get rid of the MIP, but make you pay more MIP at closing? 

Message 3 of 10
NC_Mtg_Loaner
Valued Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@Peter1142 wrote:

@CreditInspired wrote:

Check into FHA streamline refinancing. 

https://www.fha.com/fha_streamline_refinance


I'm not sure I understand the streamline refinance, doean't it not only not get rid of the MIP, but make you pay more MIP at closing? 


Yes, you would be paying HUD's UFMIP of 1.75% AGAIN if you conduct an FHA Streamline rate/term refinance which would lower your monthly MI from 1.35% to .8% so if the current rate being offered is 4.25% or so, it wouldn't likely make sense to refinance with FHA loan again.

 

Compare your current  loan's APR to that of a conventional loan in today's market with your trusted LO.  Chances are, the conventional loan IS going to be the way to go in order to eliminate the 1.35% in MI being paid monthly and if you play your cards right this summer, you'll be able to take advantage of the refi oppty that's coming in the next month or so...

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 4 of 10
Peter1142
Established Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@NC_Mtg_Loaner wrote:

@Peter1142 wrote:

@CreditInspired wrote:

Check into FHA streamline refinancing. 

https://www.fha.com/fha_streamline_refinance


I'm not sure I understand the streamline refinance, doean't it not only not get rid of the MIP, but make you pay more MIP at closing? 


Yes, you would be paying HUD's UFMIP of 1.75% AGAIN if you conduct an FHA Streamline rate/term refinance which would lower your monthly MI from 1.35% to .8% so if the current rate being offered is 4.25% or so, it wouldn't likely make sense to refinance with FHA loan again.

 

Compare your current  loan's APR to that of a conventional loan in today's market with your trusted LO.  Chances are, the conventional loan IS going to be the way to go in order to eliminate the 1.35% in MI being paid monthly and if you play your cards right this summer, you'll be able to take advantage of the refi oppty that's coming in the next month or so...


Can you be more specific as to the opportunities you are referring to? The problem with a conventional refi is it costs anywhere from $5k to $9k+.

Message 5 of 10
NC_Mtg_Loaner
Valued Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options

Sure, I'll try....

 

Let's assume your Conventional loan closing costs are $9000.

 

  1. 1.  How much would you continue to pay in PMI with your current FHA Loan over the remainder of that loan or until you sell it in (let's say) 5 to 10 years?
  2. How does that compare with $9000 that it would cost to refinance to a new conventional loan?  If your current PMI is $230/mo in 3 years and 3 months removed from your current FHA Loan you'll have saved $9000 in PMI.  How does this new loan payment compare?
  3. How does $9000 compare with your current loan balance X 1.75% which is the amount of HUD's UFMIP that would be charged to a new FHA loan, should you opt to conduct an FHA Streamline Refi?
  4. What kind of ROR (rate of return) are you receiving on your other inestments?  Either a company 401k plan or a money market outside of retirement funds?
  5. Are  you carrying any high interest credit card debt?

 

There might be more factors, but these are the ones that immediately come to mind.

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 6 of 10
Peter1142
Established Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@NC_Mtg_Loaner wrote:

Sure, I'll try....

 

Let's assume your Conventional loan closing costs are $9000.

 

  1. 1.  How much would you continue to pay in PMI with your current FHA Loan over the remainder of that loan or until you sell it in (let's say) 5 to 10 years?
  2. How does that compare with $9000 that it would cost to refinance to a new conventional loan?  If your current PMI is $230/mo in 3 years and 3 months removed from your current FHA Loan you'll have saved $9000 in PMI.  How does this new loan payment compare?
  3. How does $9000 compare with your current loan balance X 1.75% which is the amount of HUD's UFMIP that would be charged to a new FHA loan, should you opt to conduct an FHA Streamline Refi?
  4. What kind of ROR (rate of return) are you receiving on your other inestments?  Either a company 401k plan or a money market outside of retirement funds?
  5. Are  you carrying any high interest credit card debt?

 

There might be more factors, but these are the ones that immediately come to mind.


Sure, here are the answers:

1. I would pay about $37k in MIP over the rest of the life of the loan.

2. My interest rate is 3.75% and I have 25 years left on the loan. Refinancing would not only cost me $9,000, but also 28k more in interest over the course of the loan. It is basically the same outcome in terms of overall cost, but it takes longer to get a net cost benefit, but with a reduced monthly cost that frees up cash to invest or pay off other debt.

3. The MIP would be far less. Loan balance is like 203k. 

4. My 401k gets like 6% a year return.

5. I have about 19k in credit card debt that we are trying to pay off, but it has not been hard to avoid paying much interest on it. Even on a moderate interest card, it would be cheaper than amortizing over 30 years.

Message 7 of 10
NC_Mtg_Loaner
Valued Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@Peter1142 wrote:

@NC_Mtg_Loaner wrote:

Sure, I'll try....

 

Let's assume your Conventional loan closing costs are $9000.

 

  1. 1.  How much would you continue to pay in PMI with your current FHA Loan over the remainder of that loan or until you sell it in (let's say) 5 to 10 years?
  2. How does that compare with $9000 that it would cost to refinance to a new conventional loan?  If your current PMI is $230/mo in 3 years and 3 months removed from your current FHA Loan you'll have saved $9000 in PMI.  How does this new loan payment compare?
  3. How does $9000 compare with your current loan balance X 1.75% which is the amount of HUD's UFMIP that would be charged to a new FHA loan, should you opt to conduct an FHA Streamline Refi?
  4. What kind of ROR (rate of return) are you receiving on your other inestments?  Either a company 401k plan or a money market outside of retirement funds?
  5. Are  you carrying any high interest credit card debt?

 

There might be more factors, but these are the ones that immediately come to mind.


Sure, here are the answers:

1. I would pay about $37k in MIP over the rest of the life of the loan.

2. My interest rate is 3.75% and I have 25 years left on the loan. Refinancing would not only cost me $9,000, but also 28k more in interest over the course of the loan. It is basically the same outcome in terms of overall cost, but it takes longer to get a net cost benefit, but with a reduced monthly cost that frees up cash to invest or pay off other debt.

3. The MIP would be far less. Loan balance is like 203k. 

4. My 401k gets like 6% a year return.

5. I have about 19k in credit card debt that we are trying to pay off, but it has not been hard to avoid paying much interest on it. Even on a moderate interest card, it would be cheaper than amortizing over 30 years.


1. $37k in MIP > $9000* in Closing costs (*May be tax deductible) and you can likely roll 2% of them into the new loan without it impacting your loan terms.

2.  You can also look at a 20 or 25 yr amortization schedule for your new conventional loan but even if you "reset" your amortization schedule to a 30 year loan---if you keep paying your original mortgage payment amount, you'll pay the new loan off quicker than 25 years for sure. 

3.  A new FHA loan with a $203k balance would require new UFMIP in the amount of $3552--even though FHA monthly MI is calculated at .8% now, it seems you'd actually save MUCH more if you went to the conventional loan with no MI now.

4.  6% ROR in retirement funds > 3.875% of a mortgage on an appreciating asset.  There's an oppty. cost of spending $9k to refinance when it could be deployed in your retirement account, but I think long term the refi is better because it frees up enough cash to save more for retirement or pay down other debts.   Of course you should consult with an Investment Counselor or CFP if you have one.

5. Use your monthly mortgage payment savings to reduce your credit card balances---the ROR on this can be 9.99%-19.99%, but check with your credit card provider for your own results. 

 

Hope this helps....

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 8 of 10
Peter1142
Established Contributor

Re: FHA Mortgage - Mortgage insurance - Refinance or other options


@NC_Mtg_Loaner wrote:

@Peter1142 wrote:

@NC_Mtg_Loaner wrote:

Sure, I'll try....

 

Let's assume your Conventional loan closing costs are $9000.

 

  1. 1.  How much would you continue to pay in PMI with your current FHA Loan over the remainder of that loan or until you sell it in (let's say) 5 to 10 years?
  2. How does that compare with $9000 that it would cost to refinance to a new conventional loan?  If your current PMI is $230/mo in 3 years and 3 months removed from your current FHA Loan you'll have saved $9000 in PMI.  How does this new loan payment compare?
  3. How does $9000 compare with your current loan balance X 1.75% which is the amount of HUD's UFMIP that would be charged to a new FHA loan, should you opt to conduct an FHA Streamline Refi?
  4. What kind of ROR (rate of return) are you receiving on your other inestments?  Either a company 401k plan or a money market outside of retirement funds?
  5. Are  you carrying any high interest credit card debt?

 

There might be more factors, but these are the ones that immediately come to mind.


Sure, here are the answers:

1. I would pay about $37k in MIP over the rest of the life of the loan.

2. My interest rate is 3.75% and I have 25 years left on the loan. Refinancing would not only cost me $9,000, but also 28k more in interest over the course of the loan. It is basically the same outcome in terms of overall cost, but it takes longer to get a net cost benefit, but with a reduced monthly cost that frees up cash to invest or pay off other debt.

3. The MIP would be far less. Loan balance is like 203k. 

4. My 401k gets like 6% a year return.

5. I have about 19k in credit card debt that we are trying to pay off, but it has not been hard to avoid paying much interest on it. Even on a moderate interest card, it would be cheaper than amortizing over 30 years.


1. $37k in MIP > $9000* in Closing costs (*May be tax deductible) and you can likely roll 2% of them into the new loan without it impacting your loan terms.

2.  You can also look at a 20 or 25 yr amortization schedule for your new conventional loan but even if you "reset" your amortization schedule to a 30 year loan---if you keep paying your original mortgage payment amount, you'll pay the new loan off quicker than 25 years for sure. 

3.  A new FHA loan with a $203k balance would require new UFMIP in the amount of $3552--even though FHA monthly MI is calculated at .8% now, it seems you'd actually save MUCH more if you went to the conventional loan with no MI now.

4.  6% ROR in retirement funds > 3.875% of a mortgage on an appreciating asset.  There's an oppty. cost of spending $9k to refinance when it could be deployed in your retirement account, but I think long term the refi is better because it frees up enough cash to save more for retirement or pay down other debts.   Of course you should consult with an Investment Counselor or CFP if you have one.

5. Use your monthly mortgage payment savings to reduce your credit card balances---the ROR on this can be 9.99%-19.99%, but check with your credit card provider for your own results. 

 

Hope this helps....


What seems to make the most sense is refinancing into a 30 year conventional loan, then continuing to make the same payments, but having the flexibility if I need it. THEN if the refi costs lets say $9k, I will break even in like 2 years.

 

This discussion has assumed I will stay in the house for 30 years and never refinance, which is probably unlikely, and leaves out the possibility of waiting until I can afford a 15 year loan and refinancing then, which is another good option and will get me a better rate.

 

Anyway, thanks for the help thinking this through.

Message 9 of 10
sainttlf
Member

Re: FHA Mortgage - Mortgage insurance - Refinance or other options

So did you end up moving forward with a refi?  If so, what did you end up with? 

 

I was able to lock in @ 3.375 with $80k cash out on 9/4, closing this Thursday.  I had 8 LEs.  My credit union, along with 2 other lenders, provided rate, lender credit and closing costs matching.  I pitted the 2 against each other, then took the best LE to my credit union here in Denver.

 

$280K loan amount, including $80k cash out (remodel & student loan debt), against a home value of $420k - new LTV 67%

30 Yr Fixed Conventional

3.375 Rate (3.386 APR) - no origination with $934 Lender Credit (matched from other LE)

 

($1556 Loan Costs)

$0 Origination Costs

$801 (Appraisal, credit report, fllod cert, tax service and income verification)

$755 Title services (I shopped these, down from $2600, $2300 and $1250)

 

($3491 Other Costs)

$153 Recording Fee

$236 Prepaid Interest

$2612 Escrows (11 Mo. of Insurance and 7 Mo. Property Taxes)

 

So bottom line - $622 Closing Costs or ~0.22% of loan value (excluding prepaids, escrows and recording fee).

 

Last minute, I shopped the final LE, just to be told by multiple lenders, "lock that in and take it to the bank!"  and  "Hell of a deal!"  Boom!

Message 10 of 10
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