refinance mortgage

[thomasdan]

Hello everyone,

Its been awhile since i've logged in. Hope everyone is well

So my question,

so my wife and I called our lender about refinancing our mortgage. She ran some numbers and this was she told us. Need advice on what to do.

when we originally bought our house my credit score was 730. Now it is at 813. we got a 30 year. at 4.481% with PMI. Our lender stated that she can add closing cost/fee to the "NEW" loan. so i didn't have to upfront any cash. New mortgage would be 30 years @ 4.175 with "LPMI". I did research on LPMI since i wasn't to fimiliar on what it is. SO basically my PMI is gone but LPMI is on my loan for the ENTIRE loan. She ran numbers and said that with this new loan my wife and i would be saving 365 dollars a month. and over 70-80k of interest over the 30 years. I am new to this and not sure what to do. But saving 365 dollars a month is a short term positve and saving 70-80k in 30years if interest is a long term positive. What would you guys do? Any question i should ask lender?

[phantom]

I'd suggest shopping around and try to get up to 20% equity in your house so you can avoid PMI and LPMI alike. If you could get to 20% equity, you could probably get a rate under 4%. You could probably even get a 15 year under 3%. Either option would probably get your monthly payments down and save you a bunch over the life of the loan. Without knowing your numbers, it's hard to guess how realistic that is. What do you think your house is worth, and what do you owe on your current mortgage?

[thomasdan]

we bought our house last year so we've been only living her for 18 months now. I believe that value is around 10 % now, we owe around $358,000. I'm thinking we won't get to 20% anytime in the next year or so. PLus i don't know where the market will be in 1-2 years if I wait to refinance.

My lender did mention about 3.75% if i was able to get 20% equity. But since I'm not really close to it. That she can do 4.175 with LPMI. still saving me 300 plus a month.

[Jluke]

I would not trust the lender if they are offering LPMI for the LIFE of the loan... that just sounds shady.

Download an amortization schedule in excel and run your own numbers.

What is your current loan balance?
Could you do a 20 year mortgage?

How much more money do you need to have 20% equity to avoid PMI?

[thomasdan]

I would not trust the lender if they are offering LPMI for the LIFE of the loan... that just sounds shady.

Download an amortization schedule in excel and run your own numbers.

What is your current loan balance?
Could you do a 20 year mortgage?

How much more money do you need to have 20% equity to avoid PMI?

I thought it was a little shady at first. But it's not just my lender. It's the policy for LPMI for everyone.

we owe about 358,000 left. we've been living in our house for 18 months now.

And I don't believe we can do a 20 year mortgage yet. Not for a while.

[riverwed070707]

IMO its not a big enough difference to justify a refi. You're going to be ADDING to your loan. It would be better to just pay extra on the loan (whatever you can swing - $100, $500/mo) to hit your 80% and get rid of your PMI. You'll still see the interest savings and you haven't added to your loan cost by dropping .3%.

[Jluke]

I thought it was a little shady at first. But it's not just my lender. It's the policy for LPMI for everyone.

we owe about 358,000 left. we've been living in our house for 18 months now.

And I don't believe we can do a 20 year mortgage yet. Not for a while.

I'd stick with the current loan and get to 20% equity first (I'm guessing your loan balance would have to be around 310K). If you haven't done an amortization schedule do it now, and play around with extra payments (echoing riverwed's comment); a measly $100/month on your loan early on will reduce total interest.

The banks want to make money and it just seems like LPMI is their way of getting money out of you for a longer term (I admit, this is the first I've heard that term).

I'll also point out that others will tell you that if you didn't have 20% upfront you shouldn't have bought it. but not everyone has that luxury; you just have to be disciplined in your spending/expenses now. You are on the hook for a lot of interest with that loan amount and terms; plus the PMI.

Do you get a bonus at work? you may want to throw 80% of that on the loan.

Do you have an emergency fund?

Are all of your other finances in check - credit cards, retirement savings, car loans, etc?

[thomasdan]

I'd stick with the current loan and get to 20% equity first (I'm guessing your loan balance would have to be around 310K). If you haven't done an amortization schedule do it now, and play around with extra payments (echoing riverwed's comment); a measly $100/month on your loan early on will reduce total interest.

The banks want to make money and it just seems like LPMI is their way of getting money out of you for a longer term (I admit, this is the first I've heard that term).

I'll also point out that others will tell you that if you didn't have 20% upfront you shouldn't have bought it. but not everyone has that luxury; you just have to be disciplined in your spending/expenses now. You are on the hook for a lot of interest with that loan amount and terms; plus the PMI.

Do you get a bonus at work? you may want to throw 80% of that on the loan.

Do you have an emergency fund?

Are all of your other finances in check - credit cards, retirement savings, car loans, etc?

My wife and i can afford our current mortgage now. We just wanted it lower to have extra funds to save.

Our emergency fund can always need work but we have direct deposit every paycheck that funds it. so its creeping up every 2 weeks from my wifes paycheck and my paycheck.
we have no credit card debt and no car loan. we're pretty much debt free beside mortgage and monthly expenses. Our retirement can also work at so saving money now on our refinance mortgage will will fund that.

What I'm afraid of is if I wait till 20 % equity however short or long it takes me, the interest rate is going to be higher than what my current rate is.

[riverwed070707]

My wife and i can afford our current mortgage now. We just wanted it lower to have extra funds to save.

Our emergency fund can always need work but we have direct deposit every paycheck that funds it. so its creeping up every 2 weeks from my wifes paycheck and my paycheck.
we have no credit card debt and no car loan. we're pretty much debt free beside mortgage and monthly expenses. Our retirement can also work at so saving money now on our refinance mortgage will will fund that.

What I'm afraid of is if I wait till 20 % equity however short or long it takes me, the interest rate is going to be higher than what my current rate is.

I just don't think you're looking at the bigger picture. From my quick calc, not including this length of the loan PMI, you're actually going to spend MORE, not save money assuming you're adding 2 years to your mortgage and the closing costs you roll in cost about $2k.

Current loan: this repayment mortgage for $358,000.00, over 28 years, will cost you $1,871.67 a month. In taking out this loan, you'll pay a total of $270,881.10 in interest. The true cost of this loan is $628,881.10

New loan: this repayment mortgage for $360,000.00, over 30 years, will cost you $1,755.21 a month.
In taking out this loan, you'll pay a total of $271,876.64 in interest. The true cost of this loan is $631,876.64

On the other hand, if you refi to a 20 year loan, THEN you start to see some savings = this repayment mortgage for $360,000.00, over 20 years, will cost you $2,214.87 a month. In taking out this loan, you'll pay a total of $171,568.47 in interest. The true cost of this loan is $531,568.47

I guess bottom line is what's your goal? Lower your payment or save money because this isn't doing the latter. You shouldn't rely on your banker to do your calculations - they make money by closing the loan. Run your own numbers and make sure it makes sense.

[thomasdan]

I just don't think you're looking at the bigger picture. From my quick calc, not including this length of the loan PMI, you're actually going to spend MORE, not save money assuming you're adding 2 years to your mortgage and the closing costs you roll in cost about $2k.

Current loan: this repayment mortgage for $358,000.00, over 28 years, will cost you $1,871.67 a month. In taking out this loan, you'll pay a total of $270,881.10 in interest. The true cost of this loan is $628,881.10

New loan: this repayment mortgage for $360,000.00, over 30 years, will cost you $1,755.21 a month.
In taking out this loan, you'll pay a total of $271,876.64 in interest. The true cost of this loan is $631,876.64

On the other hand, if you refi to a 20 year loan, THEN you start to see some savings = this repayment mortgage for $360,000.00, over 20 years, will cost you $2,214.87 a month. In taking out this loan, you'll pay a total of $171,568.47 in interest. The true cost of this loan is $531,568.47

I guess bottom line is what's your goal? Lower your payment or save money because this isn't doing the latter. You shouldn't rely on your banker to do your calculations - they make money by closing the loan. Run your own numbers and make sure it makes sense.

i apologize. I just checked my email again from my lender. The new interest rate is 4.125 not4.175 %

I did mess around with the Amortization calulator. One thing I'm not sure is if we're going to stay in our house for the entire 30 years. We plan on it, but life happens sometimes and just dont know if we're going sale in 10 years or what not.

short term- If im able to save $365 a month X 12 months is $4380 I can save in 1 year. That can go towards extra payments or savings.

[Jluke]

What I'm afraid of is if I wait till 20 % equity however short or long it takes me, the interest rate is going to be higher than what my current rate is.

I would stay away from the refi; esp if it includes the LPMI. if you were going from a 30 to a 20 or 15, then I would say go for it.

4.481 vs 4.125 isn't significant.

The goal should be to get to 20% equity with your current loan so you can remove PMI. then re-analyze your situation. Accelerated payments would essentially reduce the 4.481 rate.

From the bank's perspective, they would get guaranteed LPMI payments plus closing costs plus 2 years longer term plus interest on all of that. the $360 savings just very well may be a tease.

check the math several times over.

disclosure: here's my last refi situation... 15 year mortgage at 5%. Paid on that for 5 years. When 10 years was left I refi to a 10-year loan at 2.875%. I was lucky to never pay PMI and I made a lot of extra payments.

[snafu]

riverwed has presented my initial reaction with figures to support her reasoning. Your bank seems focussed on moving their mortgage holders from PMI to LPMI so that ridiculously expensive mortgage insurance extends like an albatross for the entire 30 years [or more if you ever access equity] of mortgage.

Every time you re-set your mortgage there are charges that read as profit for the lender. Worse yet your interest to principal ratio re-sets. There is no evidence that bank rates will increase in the near future [$ 18 Billion debt; China just sent everything into a tailspin by lowering their bank interest rates along with currency devaluation]. You tell us you're motivated by the possibility of reducing monthly mortgage payments and reducing the overall payout long term. Very worthwhile goals but likely better achieved by watching what several other financial institutions are offering [Credit Unions & Electronic only Banks] to boost business.

Time spent manipulating figures are likely worthwhile. You can always go back to your lender with figures and promotions offered by other places ready to move or negotiate their position. Your loyalty needs to be welded to your finances and the very best rate and lowest fees on offer. Most people don't understand how a mortgage amotorization table works. It all has to do with prepaying interest before even a dollar comes off principal! In you shoes, I'd track value and focus on what is needed to drop PMI. It costs you plenty year by year and all benefit goes to the lender.

[Goldy]

My initial reaction was a strong NO but I would have a few questions for the lender before I would give the final answer. The first thing that strikes me is that a savings of $365 a month is a decent chunk of money which seems like more than just recasting the loan over 30yrs and the small interest savings. I'm wondering if the PMI and LPMI are the same amount. If the LPMI is less as it should be then I'd start to think a little bit more about taking it.

How much were the closing costs? I'm a pretty firm believer of getting those as low as possible by taking a slightly higher rate because the average person only stays in a house for 5-7 years so paying a few grand up front will be had to make up if you move.

[thomasdan]

so i called the lender regarding the Lender paid Mortgage insurance.

She stated that the lender will pay out the PMI for me and wipe it out so i don't owe it anymore. But with doing that, i'll have a higher insterest rate of 4.125 instead of around 3.75. But the 4.125 is still better than what im getting now on my current loan of 4.481% which saves us 365 dollars a month on our mortgage. Ideally i wish i had put 20 percent down. but Its unrealistic in my situation and thats another topic.

[thomasdan]

riverwed has presented my initial reaction with figures to support her reasoning. Your bank seems focussed on moving their mortgage holders from PMI to LPMI so that ridiculously expensive mortgage insurance extends like an albatross for the entire 30 years [or more if you ever access equity] of mortgage.

Every time you re-set your mortgage there are charges that read as profit for the lender. Worse yet your interest to principal ratio re-sets. There is no evidence that bank rates will increase in the near future [$ 18 Billion debt; China just sent everything into a tailspin by lowering their bank interest rates along with currency devaluation]. You tell us you're motivated by the possibility of reducing monthly mortgage payments and reducing the overall payout long term. Very worthwhile goals but likely better achieved by watching what several other financial institutions are offering [Credit Unions & Electronic only Banks] to boost business.

Time spent manipulating figures are likely worthwhile. You can always go back to your lender with figures and promotions offered by other places ready to move or negotiate their position. Your loyalty needs to be welded to your finances and the very best rate and lowest fees on offer. Most people don't understand how a mortgage amotorization table works. It all has to do with prepaying interest before even a dollar comes off principal! In you shoes, I'd track value and focus on what is needed to drop PMI. It costs you plenty year by year and all benefit goes to the lender.

I did do a mortgage amotorization table, if i understood it correctly..the time i hit 20 % isnt till my 9th or 10th year.