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Refinancing to a 15yr fixed loan to get rid of PMI

My wife and I bought our home a little over 2.5 years ago for 128K with 5%down and APR 4.75% in a 30yr conventional. Our current mortgage payment is 1018 with our principal and interest being 638/month and our PMI is 124/month. Our current principal is 115K, so our LTV is just under 90%. The value of our home has definitely gone up since we bought it and we have made a few improvements. So, using Zillow and the comps around us, I believe we would be reappraised around 150k. So, my plan would be to refinance into a 15yr fixed mortgage, which would give us a lower rate (3.5-3.75?), get us to a more appropriate LTV to remove PMI. I am comfortable with a slightly higher payment as long as it is saving me in the long run. It all makes sense in my head but I'm sure I'm missing something. Please comment. Thanks.
  • April 25 - Youngstown
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Answers (12)

Your last comment about  maybe only being in the property for 2 yrs is important.  I would take over 2 yrs to pay back typical closing cost at a $124 savings monthly. That would mean virtually no benefit to refinancing whether you did a 15,20, or 30 yr loan. Your other comment about PMI being high is also interesting.  $124 a month represents 1.20% monthly MI which is very high for a conventional loan but about where FHA MIP was 2 1/2 yrs ago on a 5% down FHA 30 yr loan. Review your docs for any mention of MIP on monthly loan statement or FHA on closing documents.  Otherwise your credit score would have had to been below 650 for the conventional PMI to be that high..........If loan is an FHA loan, the MIP remains for minimum of 5 yrs.
  • April 25
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Thanks for the follow up and make sure you look at all products that are available to you and have a loan officer explain each and everyone one of them to you.

Gaining equity is always the idea but saving money is also especially if your only going to be spending less than five years in your home.
  • April 25
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Thanks for everyone's help. I'm not very versed on the ARM loans. I'll have to look them up. The general consensus that I got is that the 15yr fixed loan to remove PMI and get me on a faster track to gaining more equity is a good idea. I'll roll with it from there. Also, we may only be in our house another 2 years. We are outgrowing it very fast. I just like to be conservative and say we'll stay there 10 years at max.
  • April 25
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That should affect your decision in knowing what product to take.  Ten years from now is a long way out and you just never know.  If you were thinking 3 to 5 years or even 7 years and you knew that you would sale, I would recommend you look at the 7/1 or 10/1 ARM.   
  • April 25
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I'm comfortable paying a little more than I am now as long as I am saving money in the long run. Maybe "strap too tight" was a poor choice of words. What about the fact that we don't plan on living here for more than another 10 years? How should that affect my decision?
  • April 25
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Look at all your options there are different terms such as a 15, 20, 25, etc. but it is worth the 15 year loan.  One thing to consider if your going to be forced to pay that amount every month, perhaps it may not be a good idea to switch to a 15 year loan.  You want this payment to be comfortable so if it is better for you to pay on a 30 year and pay extra when you can, probably the way you want to go.

  • April 25
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I guess I was thinking finance the 115K for 15 years or maybe even putting another 5k down and make it 110000 for 15 years. Closing would be out of pocket. I'm not looking to get any cash out of this, just get rid of my PMI and get on a faster track to gaining more equity. I do like your idea of asking for reappraisal without the refinance but I didn't know this was an option. The problem is when I only owe X amount for a monthly payment, I rarely pay more than that. I thought a 15 year would force me pay it off faster, and as long as it doesn't strap me too tight I figured it would be a good option. I do agree that the diffence in APR is not a lot in savings. Whenever we first got our loan it was the most stressful thing we've ever gone through, so I just fear having to deal with the bank at all, but I want to get rid of this PMI!
  • April 25
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I agree with your thought process too. The money you'd be saving monthly would offset some of the bump for the higher term but saving the mortgage insurance would be worth it!! If I can help answer any add'l questions, I'd be happy to help. Best wishes otherwise, Kimberly Lawson, Licensed Mortgage Loan Originator - Ohio only. Contact and licensing information can be found on my profile.
  • April 25
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You will need to also consider the costs of doing a refinance and whether you have enough equity to finance them into the loan and stay at or below 80LTV or whether you have the ability to pay them out of pocket at closing.  You can also consider a lender paid costs scenario but that will mean a higher interest rate. If you finance $120,000 (80% of $150K) for 15yrs at a rate of 3.75% that will give you a p&i payment of $872, a significant increase to the current $638.

If you are confident the house has 20% equity why not get an appraisal done to confirm and ask your mortgage company to drop the PMI.  You can always re-amortize you existing balance and pay it as a 15 year mortgage without the cost of refinancing if you want.  The interest you save from 4.75% to 3.75% is not going to be that significant and now you are locked into the 15 year payment.  In both scenarios, the interest will continue to be tax deductible at the end of the year.

Best Regards,

Don
  • April 25
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It just occurred to me today that I could get rid of my PMI this way so I need to look at the mortgage language and make sure there isn't anything funny in there that would prohibit me from doing this. Is this a common thing to do? Also, is $124/month high for PMI? It seems like it is to me. Also, do you believe this is a smart decision if we don't plan on living in this house for very long (another 5-10 years)?
  • April 25
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You are not missing anything, that is an excellent plan.  
  • April 25
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I think that you have thought this through correctly and refinaning to a 15 year loan getting rid of mortgage insurance is a smart idea!  Good job.
  • April 25
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