Another should I refi question (PMI, loan, interest rate, escrow)

[Hayzuse]

We bought our home in dec of 10 and have a 30 yr FHA loan we pay $77 pmi and our payment is $1200 I bought the house on my own because my wife was only working on call and had school debt. At the time I had 660 credit but still got approved the loan was for 172000 we still owe 165000 and have 4% intrest rate but now that we have been talking with some banks they said we could get a 15 yr mortgage with 2.85% and the payment would go up to $1450 and the monthly payment ist the issue I just hate the idea that I can have a lower rate and not pay pmi. We know this isn't going to be our forever home we do plan to possibly look for something larger and nicer in 5 years or so. So in the end is it worth doing a refi or should we just keep what we have and look in 5 years? Thanks Justin

[Pfhtex]

Do not refinance. The new payment will constrict your ability to buy other things in the future, because the new fifteen year minimum payment will be on your credit report and will be a component in your projected debt ratio for future purchases.

Pay extra on your payment, go bi-weekly, be aggressive with your loan, as it is, and your effective rate can be in the high 2's when it's all said and done.

[Pragmaticus]

Originally Posted by Pfhtex

Do not refinance. The new payment will constrict your ability to buy other things in the future, because the new fifteen year minimum payment will be on your credit report and will be a component in your projected debt ratio for future purchases.

Pay extra on your payment, go bi-weekly, be aggressive with your loan, as it is, and your effective rate can be in the high 2's when it's all said and done.

Hmm..where did you get their income information? The OP said the payment is not a problem and yet you want them to continue to pay at higher interest rate?

While the pay extra, go bi-weekly advises are solid, for people who can afford 15 year, which the OP appear to be, it is not a substitute.

[Pfhtex]

So you'd rather see them jack the loan back up to $170k+, or more if they have to re-pad escrows, depending when taxes and insurance are due, and just erase the past few years of payments?

Not to mention the fact that shifting to a 15 year payment, while affordable, would place that minimum payment on their credit report, constricting their ability to borrow in the future.

Additionally, they plan on looking to move in 5 years. Right now they have meager equity. A refinance will reduce that even more, to the point that in 5 years they will be right back where they are now, having spun their wheels while churning equity.

Spare me the emoticons.

[Pragmaticus]

In order to see whether refinance make sense, they need to run the number and decide if that make sense for them. But without really looking the entire picture your DO NOT refinance just pay aggressive is questionable. And you are advising standard "don't do it, it constrain your abaility to borrow more" make no sense when they say payment is not a problem. Did you even read that part?

You want them to keep paying on a 30 year amortization and keep the flexibilty of borrowing more perhaps at a higher rate? Hmmmm . You remined me of the guy who keep saying if you devide your monthly payment by 12 and send it every month, you will shed 7 years off of a 30 year mortgage even though thousand time he was told it depends on the interest rate of the mortgage .

[FCNova]

Yes Pfhtex is making wild assumptions. Where he got that you're jacking your loan back to 170+ I don't know. You never mentioned closing costs. And where he got you'd be tight on money, you said you could make the payments on the 15.

I find it hard to believe that this refi wouldn't make sense to do, as long as you're ok with the payments as you said, because over the next 5 years you'll pay much less interest with the 15 yr and build up alot more equity. Even if you just keep the current loan as Pfhtex said and just pay more each month, you're still paying higher interest, which could instead be put towards principal. But you really need to assess all the closing costs involved and run some numbers as to where you'll be at in 5 years under each scenario.

[azcater]

you may be ok with the payments now.. but what about something unexpected in the next year? Some financial people suggest paying down extra principal on your mortgage when you can afford it but you're not locked into the higher payment on the off chance you run into trouble.