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Is it worth to refi

I owe 290 on a 300 house-FHA 30yr 5% i am 17 months into the loan
current 1600 + 55$[Insurance[ + MI 132 + Tax 267

new refi
4.25% FHA rate locked till 11/25
1448.34 + 55$ Insurance + MI 205 + Tax 267

not sure why my MI is more but even is it worth doing

my payment drops by 75$ and terms go up by 15 months. I am 33 so maybe its not bad. the good thing is in 5 yrs it will go down to 1775$ when MI goes.

but is it worth it.please advise.
  • October 27 2010 - US
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Answers (14)

Best Answer

Yes, you should be able to make up the amortization difference in about 2 years. This is assuming that the 4.25 you are paying is with no closing cost. I just checked rates and that should be the case. Your lender should be able to give you a $2500 credit to cover them.
I assume you are trying to do a stream line refinance which does not allow you to reduce your term.
Even if something happens and you have to sell in the first two years, you will not have lost much. 
Good Luck!  
  • October 27 2010
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Unfortunately the increase in the monthly MIP eliminated most of your savings.
If this is a streamline refinance - it won't work, because you must realize a minimum savings of 5% off total PITI.
If not a streamline refinance, then you must analyze this from the standpoint of total closing costs versus savings (to see how long it will take to recuperate the cost); then you make a decision based upon your plans for this property (how long you plan to stay there).
Hope this helps.
  • October 28 2010
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Hi msats,

From my understanding of the 78% rule, it is based on the original value of the fha transaction.  Also, it is (again from my understanding) a minimum of 5 years or the 78%, whichever you hit later.  I'm mentioning this because I've refinanced clients whom had second loans on their homes that exceeded the value of their home and their interest rate was high, so they refinanced into an fha loan (even though their first was below 78%).  They still have to pay MI for at least 5 years.  Their first loans weren't owned by Fannie Mae, nor Freddie Mac (so the HARP program wasn't an option) and conventional loans restrict the overall financing, which fha doesn't restrict the seconds (as long as they're willing to re-subordinate).  I'm starting to see some investors restrict the overall financing, so this may not be as doable as before.  I just didn't want you expecting to be rid of your monthly MI when you complete your garage and addition.  Congrats on the second child.  Sounds like this will be a place you'll be for awhile, so to answer your question, then it may be worth looking into improving your cashflow (especially, if you're going to be 1 income and with 2 children).  As I explain to my clients, you have to look at your personal finances like a business.  The lifeline for every business is cashflow, so how you structure your largest debt can make a world of difference in your personal life, as it does for businesses.  Best of luck.
  • October 28 2010
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With the increase in Monthly MI recently which is almost double what it used to be my advice would be to stay where you are at unless the $75 reduction is absolutely necessary.  FHA lowered the UPMI which is great, but streamlines are monthly payment based and by raising the monthly MI they limited the amount of homeowners we could help because it erodes the monthly benefit with the streamline refinance.  Like Matt said, if it fits your budget and financial plans shorter term loans have great rates right now and if you are going to make any moves that would be an idea to think about.

Good Luck Msats
  • October 28 2010
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To keep it simple, if you plan on staying in this home for 5+ years and the costs are paid for, then it makes sense to do something with your mortgage. If your current payment fits your budget, then the suggestion of reducing your term 20 or 25 years offers the best long term interest savings as well as faster build up of equity. In my opinion, the smart question to ask yourself is how can I reduce my term; not how can I make my payment cheaper. Theoretically, the current payment you are in should fit your budget, barring economic circumstances of course. Therefore, the opportunity to reduce term and stay within budget is a winner in my book.

 
  • October 28 2010
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I plan to stay at my home for a few years. I am having kid no2 and we have decided to become a 1 income family for a while.so this is just no1 item but one of  a list of items like refi cars and stuff to generate some more free cash.

so this to drop my payment as i have some debt i want to clear up.right now i for some reason seem to be a cycle not maintaing it and not eliminating it and every dollar helps.

Good to know about the 78% rule. My 2 car garage is 70% finished and this winter i will finish it. I also adding around 400 sqft [60% done] of living space to the house so might be that if the market improves even a bit i can hit the 78% ...i need some time and money.

Good to know i will get a refund i can pay principle down by 2k + maybe 2k from my pocket.

ceiling.

  • October 28 2010
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Your MI is more due to the FHA changes as of 10/04/2010. The MI will not go complely away in 5 years.  Please check with your lender and make sure you are getting the correct interpertation on that.  Good Luck

  • October 27 2010
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You need to double check the information on the monthly MIP.  FHA MIP on a 30 year loan stays there for a minimum of 5 years but will not go away until your loan amount is reduced to 78% of the new appraised value.
  • October 27 2010
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If your loan officer didn't tell you why the MIP is more on this Refinance you either need to ask him again or change loan officers.  MIP went up On October 3.  If your FHA case # was assigned after that date you will pay the increase in MIP.  If your application sat around the office for a few days and no one took care of your application that would be an issue.  As I said the Higher MIP depends on the above date.  So the MIP practically doubled the monthly payment but cut in half the up front portion.  Sounds like a government thing but that is what happened.
  • October 27 2010
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Yes, Mike is correct, I made a type O..  Msats,  If you having trouble with the payment that is one thing..  But going back to a 30 clearly is a backward move if you are only trying to reduce your rate. We do not know the future if you will stay or go.  I do know paying down principal increases equity, reduces interest you will pay and you will have more buying power if you move and pay less interest if you stay.

Consider a 25 year FHA loan P & I is $1,571.04 @ 4.250% with a $290,000 loan with your new MI at $205.. you are spending only $44 more a month and you save 43 months in payments.. That is $74,476.00 in current monthly P & I and Insurance premiums SAVED that you don't have to pay.  Not sure where you are but I have one lender who does 20 and 25 year FHA notes.. Plus when you get your MIP upfront refund back, send it as a principal reduction on the new loan in a lump sum.

I just took a customer from a 27 year FHA to a 20..He just got a $2,002.00 FHA refund and send it as a principal reduction and knocked off another 13 months of the 20 year note. He was able to knock off over 8 years in mortgage payments.  a lot to consider!
  • October 27 2010
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I think it is something to look in to.  It depends a lot on do you need the monthly savings rather than "is it going to cost me few thousand dollars over 30 years".  Even though we can all provide some reasonable advice no one will know or be able to determine if this is something that you will benefit from without going over your situation in more detail.  To address the rate I wouldn't say that it is too high or that there is better; it also all depends on how the upfront fees are structured on your particular loan.  The truth of the matter is this, the bank is going to get paid either way, either on the front of the loan or the back of the loan.  If you are interested in discussing your situation in further detail, to see if this is something even worth while pursuing feel free to contact me.
  • October 27 2010
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Hi msats,

You may want to first ask yourself, "how long do you plan to live in your current home?".  You are young and maybe your family will expand and need a larger home.  I don't know your circumstances, but this may be a starting point with your thought process.  Secondly, what is your total cost to doing this loan?  It appears that you'll be saving (without the monthly MI being factored) approximately $150/month, which will translate into $1,800/year.  You can probably re-coup your closing costs within a few years and potentially save yourself a lot more money if you elect to be in your home for the long term.  JoeMtgMan is correct about the change in the Upfront MI and Monthly MI, but the Monthly MI will actually be .90% (if your base loan balance is greater than 95% of your original home value; otherwise, it will be .85% when it's less than 95%).  I hope this is helpful with your decision-making process.
  • October 27 2010
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I think you can get a better rate than 4.25, look into it.
  • October 27 2010
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Msats,

I think establishing the reason why you want to refinance is a good starting point.  Although having a lower rate is attractive, being debt free sooner in life than later would be the greater goal. Your MIP is more because FHA made a change recently in lowered the upfront financed MIP from 2.25% down to 1%, but increase the monthly. Depending on your original down and loan to appraised value, your new monthly could go from .55% to .95%.. on in simple terms, wipe out any benefit of a lower rate.  MIP or any mortgage insurance premium is a cost to any loan. It ultimately drives up the APR and net effect interest rate. But it helped purchase your home!  In addition, the cost of financing your loan and going back to a 30 year will set your forward progress backward. You would not save enough monthly.  Because of the higher MIP now in play, you should look at sending extra money to principal each month.  Remember every dollar even one will reduce your term, time in a rate without refinancing.  As far as your MIP dropping of in 60 months, that is not etched in stone and that will depend on your lender and your loan to value. Lenders are hard pressed to give up the insurance protection. You need to really focus on increasing your equity base with sending extra money especially in the early years!

There are additional products out there that could help you automate equity acceleration. If you want email me and I can send you some information.

Good luck
Joe  
  • October 27 2010
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