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FHA-Streamline- To Refi or Not to Refi?

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Anonymous
Not applicable

FHA-Streamline- To Refi or Not to Refi?

My wife and I have an opportunity to refi on our house that we've owned for 4 years this April. Our original mortgage is FHA and locked in at 5.85% with APR at 6.0. We have an opportunity to lock in at about 3.85% I know this is a no brainer but I really do need a boost of confidence to do this. My wife and I are both employed however we are caring for a family member who is medical dependent. It's hard sometimes to look at finacial advantages when you have to lay out money to do so. 


We purchased the house in Apr-08 for $344K. My house is currently underwater by alot. Zillow lists it at $195K but I'm guessing market price is more like $240-250k. Still gulp! Interviewed with a broker last night who thinks we can get down to 3.80% (today it's 3.85). Our current monthly is $2729. $2033 for the mortgage, $566 for the taxes and $130 for PMI. 


My wife and I are both employed, make about $140K, we owe $330K left on the mortgage. Our scores range from 692-727. The problem is we've made a bunch of necessary repairs to the house (just spent $5,000 on a new furnace) Our savings is down to $12K. The one good thing is we have very little debt. About $3500 in revolving and one car payment per month at $400. Our Debt to Income with the new mortgage is about 22%. 

According to a prelim GFE our closing costs on a Streamline FHA are around $9K. New title is listing at $2000, deposit for escrow $4500, Transfer tax-$2500, PMI upfront $3300, all equal to $9102. The additional catch is that we are locked back into PMI for 5 more years and the rate is higher than when we close. About $277 per month versus $130. I know I need to think long term but the thought of depleting my account $10K in closing to save $250 per month over the next 5 years is not as terrific as I previously thought. 

It is so hard to save these days... gas is $4.00, I just paid a $1100 heating oil bill, and our school taxes are going up 7% in the fall. I know I should be thinking refi is the way to go but emotionally I'm feeling held back. Please someone knock me in the head and tell me to go for it. 

Message 1 of 18
17 REPLIES 17
Client9
Regular Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

I cannot tell you whcih way to go as it all seems to good to be true.  some of the letters I get that offer these programs is that there is no money out of pocket and debt consoildation OK (not that I have any)  but the HUD site says that you cannot get cash back.  I would just want the lower rate and knock off a few hundred bucks off of my monthly payment.

 

it all seems like a scam in a way.

Message 2 of 18
IOBA
Senior Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

wheresgrant - IMO - leave your mortgage alone!   Especially since the house and the mortgage sound like they work for you.

 

Save the money.  Write off what you can of the interest on your taxes.   Keep plugging along.

 

Why would you spend $9k to pay MORE PMI every month and extend the minimum timeline for PMI?   

 

If you are worried about having a mortgage payment, pay extra every month towards the principle.   That will help reduce the overall "underwater" experience.   Save some money for emergency repairs.  We all know that they do happen, like your furnace.

 

You are 26 yrs away from being mortgage free.  Sooner if you make extra principal payments.   Why would you want to extend that by another 4 yrs?  And I didn't read that you had a *need* to refi.  I can't do the math right now, but it looks like your payment will drop about 700 a month...it will take you approximately 1 year to recover that in a lower payment, plus the additional years of the mortgage, so it looks like to me (and remember, this is headache math) it will take about 5 yrs to recover the money.  Maybe longer since the PMI is nearly double what it was before, which means your principle payment each month will be significantly less on the new loan vs the old loan.  And the overall amount of interest you pay the lender will also go up -- 4 more years on the loan, plus the top heavy interest mortgage payments in the beginning.

 

Anyways, just my opinon - don't refinance.    Smiley Happy

Message 3 of 18
Anonymous
Not applicable

Re: FHA-Streamline- To Refi or Not to Refi?

We're not looking to get cash back... I guess what I'm saving with the lower interest payment, I'm losing with having to pay MIP upfront and being locked into a higher PMI for 5 more years. My PMI is raising from $130 to $277.  So what looked like a savings of $400 initially is only $200 per month. Add in the $9K in closing costs and I just wonder what I am earning. Something... yes... but really for the next 4-5 years nothing much. Except I'm out nearly $10K in cash? 

Message 4 of 18
IOBA
Senior Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

wheresgrant - 

 

1.  Save the 9 or 10k for emergencies.

2.  Invest it into a 5 yr CD and let it earn interest for you.

3.  Apply it towards a principle payment.

 

IMO, all three are a better choice for using the money to work FOR you, instead of against you.

 

Forget about the interest rate.  Those are teasers to intice you into debt...more debt...it's the old, you gotta spend money to make money thing.  You are going to spend 9-10k to pay $200 MORE a month in PMI.   And, to give the loan processor, the underwriter, the loan officer, and the bank a huge paycheck bonus.   (Serious, you want to give them a bonus for making you spend more money???)  And the bank is going to make a lot of interest off of you in those early new yrs of a refinance mortgage.  

 

Makes no sense to me.   You are the only one loosing in this deal (again, just my headache opinion).

Message 5 of 18
Anonymous
Not applicable

Re: FHA-Streamline- To Refi or Not to Refi?

IOBA... yes, that is what is nagging me? What am I really saving in short term? Um, not much. I'm reducing my deductable interest a adding four more years to my plate. Additionally I'm paying out (in addition to closing costs) an additional $15,100 in PMI. I can afford my mortgage, and I'm certainly interested in reducing my monthly payment. Still I'm not seeing where this is any great value.  

Message 6 of 18
IOBA
Senior Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

wheresgrant - comparing pennies to pennies, you are NOT saving a thing in the first five years or more.  Instead, you are SPENDING money.

 

Skip the refi, keep plugging along, and make the bank PAY YOU interest on the savings you currently have.   When I am headache free (probably tomorrow) I will be posting something interesting under Money and Relationships.  I am calling it my "Plan to 100 Grand".  I also call it, "On my way to 100k".  I think you will enjoy reading it and giving feedback.   If nothing else, please wait until you read that post before doing anything.

 

And it sounds like your gut is telling you No, no, NO! on the refi.   Listen to your instincts!  A refi doens't make sense (to me) in the big picture!

Message 7 of 18
Client9
Regular Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

if there were no upfront costs like I a getting promised, then i would negotiate the hell out of it and then do it.  Just refi what you owe at the lower rate and call it good.  that will be the way I would do if it is possible

Message 8 of 18
IOBA
Senior Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

wheresgrant - PS - now your refi is costing you 25k+.    Why on earth would you throw away 25k for no return?

 

Rumor is that PMI is no longer deductible on your taxes - that tax benefit is going away.  So not worth it.

 

And if you want to look bigger picture, a refi lowers your credit score, adds a new account, and lowers your AAoA.  Ouch.   And creditors look at it as though you might be having money troubles since you refinanced at a time when soooo many people are having money troubles.....silly, becuase there is no indication that you are having problems, but man, sometimes those computers just dont' get it.

Message 9 of 18
Walt_K
Senior Contributor

Re: FHA-Streamline- To Refi or Not to Refi?

I don't understand the way everyone is looking at this.  It doesn't matter if you're increasing MIP.  What is the delta on your new payment once everything is factored in vs. total closing costs?  How much time will it take you to make that money back vs. how long you plan to stay in the house?  You can also try to look at opportunity cost (e.g., investing those closing costs) for a more complete picture.  But focusing on whether MIP is increasing or decreasing seems to me to be the entirely incorrect inquiry.  If the total monthly payment is decreasing enough, then it's irrelevant what portion of that payment is MIP.

 

Other questions, can't you roll the upfront MIP into the loan if you want to reduce your cash outlay at closing? 

 

Also, I thought they were reducing the upfront MIP to .01% and the annual MIP to .55% for FHA refinances for loans that were originated prior to May 31, 2009.  You said you've had your loan for 4 years.  Wouldn't you qualify for this?  I don't know much about the program, but I'd look into it.


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
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