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I want to refinance and I'm confused about the PMI insurance

I purchased my house in 2006 and had 2 get 2 loans (I didn't have money for downpayment).  One loan is an interest only at 6.125 and the other is at 7+%.  I want to refinance and I'm confused by the PMI insurance.  The total value due on my house is 192,000, the prelimenary value is 225,000-235,000.  Which is not enough to avoid PMI.  I have very good credit and I'm confused with the loan options and the rates for PMI.  Can someone please explain how PMI is calculated?  Is this a monthly charge and an upfront premium?
  • January 07 2009 - Tacoma
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Answers (6)

MI is a monthly payment tacked onto your PITI.  You do have the option of just refinancing the first mortgage to avoid the PMI.  The 2nd mortgage lender will subordinate to the new first lender and all is good.

  • January 07 2009
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  • January 07 2009
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Rates on a mortgage these days are about 5% and lower. 

So you will save money on interest cost.  MI or Mortgage insurance will be required if you do not have 20% interest or equity in a home.  MI can be obtained by a Private mortgage Insurance Co (PMI) or government FHA 

Your main question would be, do you qualify income and credit wise.  Is your main concern monthly payments or costs?

A client with an i o (interest only loan) at 7% and a 5.5% fully amortized have about the same payments.  What is your objective, savings or cash flow?

Your income and credit profile need to be taken into consideration.

  • January 07 2009
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I'm not concerned necessarily about the cash flow or the cash flow (if payments are relatively the same, I'm ok), I'm concerned with doing the smartest thing.

My credit rating is 806 and I'm positive my income is good.  I received a good faith estimate and their was a lump sum for PMI (about 5,000) and a montly payment.  That confused me.  The 2nd loan is written as a home equity loan and has a balloon payment due in 2020 (I know it's a ways away).  the first loan is interest only and I don't like that.

  • January 08 2009
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yrs..If your proposal has a lump sum and a monthly figure than you are getting either a FHA loan or you are doing a split premium for the MI.  What loan-to-value is this being based off of.
  • January 08 2009
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The smartest thing is always to get the lowest interest rate possible but use the APR.  Since you just; (24months), purchased the home consider the cost you paid.  Those will be tax deductible.  Not sure why you are not just getting one loan for about the 85% Loan to value.  Your mortgage insurance should not be upfront but monthly.  The APR will be about 3/8 above the note rate.  Look to do it at 5%.  At 5.5% I would not consider one loan due tot he combined costs of the original cost and new cost involved. 

Your options are as "Tammy" says, refi your first and subordinate your second. No MI.  If you have an upfront MI it most likely is financed, an FHA loan and in your APR. What was your APR with the Good faith you received?

If you do not like interst only at 6.125% amortized it!!  You should not pay the minimum payment if possible.  Just like a credit card, your objective is to pay it down unless you feel you can reinvest your funds higher that 6.125%.  Money markets are below 1.5% so all your extra funds after funding retirement and creating a reserve for emergencies should be to pay off the Mortgage, Highest rate first.  (FYI 7% for a home equity line made 2 years ago seems high.  Check your note and lets us know your margin.)
  • January 08 2009
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