# Anyone do mortgages/finance?



## rahimlee54 (Jan 7, 2012)

I am working on refinancing the house. 

I have about 5% equity and my interest rate is currently at 6.5%. The bank I am with told me they could go to 3.375% on a 15 year fixed, but I'd have to pay PMI, which I have a real problem with. If I did the 15 year through them it would cost me around 4k in PMI, which leads me to why I am here, I can't really find a better situation. I was wondering if anyone could suggest something I am missing to try to get around this. My bank is a local bank and at the time we purchased the house they did an 80%/20% over two loans to avoid the PMI. Our credit is excellent, over 750, so if anyone has any ideas I am all ears, or in this case eyes.

I don't have enough cash to bring the equity up to 20% at this time. Should I just pay the PMI upfront and call it a day? Or make the PMI payments for the 4 years it would take to get to 20% equity.

Thanks
Jared


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## 99Limited (Jan 7, 2012)

Why not take out a 2nd mortgage to cover your shortfall? Your PMI payment amount should cover the majority of a 2nd mortgage payment. Another possible option, tap into your 401k. We tapped into my wife's Federal Thrift Savings account, same as a 401k sort of, for the same reason. The interest on the loan was higher than the current return on the investments and the interest was going back to us not a bank.


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## rahimlee54 (Jan 7, 2012)

That slipped my mind, but unfortunately we aren't fully vested so we can't borrow against it as of yet .


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## mhlee (Jan 7, 2012)

Just a few questions:

When you say you have 5% equity, do you mean that that the value of your house is only 5% more than the loan amount?

Most lenders look for an 80% LTV ratio. That's the important thing. If your loan amount is low enough for to meet that 80% LTV, go somewhere else.

If you can't meet that 80% LTV, maybe hold off for a bit, try and pay more of your mortgage, and refinance as soon as you can hit that 80% LTV. That's what I'm trying to do this year.


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## WildBoar (Jan 7, 2012)

mhlee said:


> Just a few questions:
> 
> When you say you have 5% equity, do you mean that that the value of your house is only 5% more than the loan amount?
> 
> ...


x2. The days of 80/20 are long gone. There's a reason mortgage insurace exists, and when 80/20 loans were being made and PMI dropped, the banks were screwed when property values dropped and people walked away from their loans. We're back to the good old days right now.


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## rahimlee54 (Jan 7, 2012)

By 5% equity, I mean I have paid 5% of the total loan off, as long as the house has held value. I have been looking around pretty hard with decent luck, but I'll have to wait until Monday to talk to someone. My wife was able to get the 80/20 because of her profession, but they have since changed the program and now it isn't open to us anymore. The loan officer said I would be saving 192K, by changing so I guess if it were to cost me 4k to save 192K I could do worse. I am going to double check next week, hopefully I can find something competitive with this. Even though a national bank interest rate slightly beats this one I would like to keep my business local.


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## mhlee (Jan 7, 2012)

Just remember that many mortgage brokers and lenders will sell the loans they write. Even if it starts out local, it may not end up being local. You may want to ask the bank if they will keep the loan and not sell it since staying local is one of your motives. If the loan may be sold, well, go for the best rate you can.


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## rahimlee54 (Jan 7, 2012)

They still have mine, they hadn't sold any until recently, however mine is still there. We are talking about 3.375 vs 3.25. Thanks for the tip though.


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## JMJones (Jan 7, 2012)

Lock in and bite the PMI bullet for a little bit. You will be wayyy better off in the long run.


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## DeepCSweede (Jan 8, 2012)

If you have no intentions of selling the house for a long time - I would probably bite the PMI bullet for a while too.


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## MoneyMogul (Feb 15, 2012)

I think you have some major decisions to make here rahimlee54. If you are still doing research about refinancing then you may want to check out this site. I am providing a link to a page that talks about Escrow Accounts but it also has some good information about PMI.


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## DeepCSweede (Feb 15, 2012)

I am not sure what your PMI payment will be, but for example say on a $200,000 loan at 6.5% you are paying approximately $1750/month on a 15 yr loan. If you dropped down to 3.375% on a 15yr, your payment would drop down to the ballpark of $1,420/mth. which is a savings of $330/month. Based on what you are saying, it sounds like PMI would be around $4,000 for the time it would take for you to get up to 20% equity. Based on that plus refinance and appraisal fees, it would pay itself off after about 21 months. My approach with my investments is that if the payoff is past the sales date of the investment it pays to take advantage of the lower rate. Plus if you escrow, you are better off refinancing now vs the end of the year, because you have to come up with the cash for property taxes/insurance out of pocket usually to cover the year plus a two month cushion.


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## Seth (Feb 15, 2012)

The rules use to be that you couldn't get out of pmi for at least two years in addition to the 20% equity. I think it is important to try to figure a realistic projection about when you can remove pmi so you can weigh that against the lower payment. Any well-off people in the family? Some older folks might love to get say 4% on a short term loan compared the .4 % they are getting now. I did that once with my father all legal like with a mortgage document and it worked well for both of us. Some lenders have been doing 'responsible ownership' programs where the only requirement was that you have reasonable credit and have paid on time for the past 12 months. The only other thing I can think of is I will have to take a ride down and do an appraisal that will give you instant 80% loan to value.


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## Seth (Feb 15, 2012)

Here is a little calculator if you need it: http://www.3re.org/resources/index.cfm

Have you considered a 30 year loan? Your monthly savings would be substantially greater and the payback on the pmi that much quicker. My experience has been that the money made on residences came more from appreciation than paying down a mortgage (well, maybe not at the moment!). Also, you can always turn a 30 year into a 15 year by pre-paying when you are not buying knives but you can't turn a 15 yr into a 30 yr.


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