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Old 05-08-2018, 07:31 AM
 
10,196 posts, read 6,135,141 times
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Quote:
Originally Posted by dspguy View Post
You'd need also figure out where the breakeven point is since you may not own that property for the term of the loan anyway.
what's the breakeven point on a mortgage?
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Old 05-08-2018, 12:06 PM
 
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Quote:
Originally Posted by LifeIsGood01 View Post
How much higher. it is a hard and fast rule that if your current rate plus PMI is less that the rate you can get that you should stay with what you have? I know with closing costs to refinance it might also be better to stay with what you have and you can always prepay and be done in 15 years.
There is a third option - when you get down to 85% LTV, you can get a 90% CLTV equity line of credit, which will allow you to draw enough to pay the 1st mortgage down to 80% LTV, allowing you to drop PMI (based on LTV, not CLTV.)
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Old 05-09-2018, 07:13 AM
 
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Quote:
Originally Posted by LifeIsGood01 View Post
what's the breakeven point on a mortgage?
I'm talking about the break even point on refinancing a mortgage. It is the point at which the financial benefits of a new loan work to your advantage vs the old loan. Instead of paying that PMI payment until the loan terms dictate you no longer have to pay it, you'd leverage that in a new loan for that duration to pay down principal. And lowering principal would lower interest paid on the new loan. When does that happen? It is highly variable depending on interest rates and how far along you'd be in paying the original loan and when PMI "expires."

If you had a 100k loan @ 4% for 30 years with 1% PMI until loan-to-original-value (since some loans are written that way) reaches 80%, you'd be paying PMI for 95 months at a cost of 83.33 monthly with a P&I payment of 477.42.

Let's say by the third year, your home value goes up to 120k. At this point, your loan would have a balance of 95k. A conventional loan would get your out of PMI. But, it will cost you, for example, 3.5k in closing costs to pull it off. And the new loan would be 4% as well. And let's say you keep your payment on the new loan equal to the old loan for as long as you'd be paying PMI on the old loan.

Essentially, that means, every month your money out of your bank account to pay your mortgage is identical for the life of both loans. You simply apply that 83.33 per month that would have been going to PMI on the old loan to the principal of the new loan. And when you would have stopped paying PMI on the old loan, you stop putting in that extra 83.33 in the new loan.

When is the difference in closing costs made up? It would take 43 months into the new loan to make up the difference. At this point in the old loan, you'd still be paying 83.33 for the next 19 months.

When would you finish paying the new loan vs the old loan? The old loan would finish up at 30 years (obviously). The new loan finishes up 8 months earlier than the old loan even though the new loan started 3 years later.

Essentially, by applying the PMI (in these circumstance) to the refi, you shaved 8 months off your old loan.

And practically, you'd have to ask yourself - is saving 8 months on a 30 year loan worth it? Since you need to consider that you are essentially "in the hole" for the first 43 months. That's about 3.5 years where your new loan hasn't done you any favors.
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Old 05-09-2018, 08:27 AM
 
10,196 posts, read 6,135,141 times
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Quote:
Originally Posted by dspguy View Post


And practically, you'd have to ask yourself - is saving 8 months on a 30 year loan worth it? Since you need to consider that you are essentially "in the hole" for the first 43 months. That's about 3.5 years where your new loan hasn't done you any favors.
Thanks for the explanation. It's cheaper to pay a little extra each month and I do and I can get the loan down to 23 years and when I can pay more a month I can even shorten it more.
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Old 05-09-2018, 10:41 AM
 
12,358 posts, read 8,947,746 times
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Quote:
Originally Posted by dspguy View Post
I'm talking about the break even point on refinancing a mortgage. It is the point at which the financial benefits of a new loan work to your advantage vs the old loan. Instead of paying that PMI payment until the loan terms dictate you no longer have to pay it, you'd leverage that in a new loan for that duration to pay down principal. And lowering principal would lower interest paid on the new loan. When does that happen? It is highly variable depending on interest rates and how far along you'd be in paying the original loan and when PMI "expires."

If you had a 100k loan @ 4% for 30 years with 1% PMI until loan-to-original-value (since some loans are written that way) reaches 80%, you'd be paying PMI for 95 months at a cost of 83.33 monthly with a P&I payment of 477.42.

Let's say by the third year, your home value goes up to 120k. At this point, your loan would have a balance of 95k. A conventional loan would get your out of PMI. But, it will cost you, for example, 3.5k in closing costs to pull it off. And the new loan would be 4% as well. And let's say you keep your payment on the new loan equal to the old loan for as long as you'd be paying PMI on the old loan.

Essentially, that means, every month your money out of your bank account to pay your mortgage is identical for the life of both loans. You simply apply that 83.33 per month that would have been going to PMI on the old loan to the principal of the new loan. And when you would have stopped paying PMI on the old loan, you stop putting in that extra 83.33 in the new loan.

When is the difference in closing costs made up? It would take 43 months into the new loan to make up the difference. At this point in the old loan, you'd still be paying 83.33 for the next 19 months.

When would you finish paying the new loan vs the old loan? The old loan would finish up at 30 years (obviously). The new loan finishes up 8 months earlier than the old loan even though the new loan started 3 years later.

Essentially, by applying the PMI (in these circumstance) to the refi, you shaved 8 months off your old loan.

And practically, you'd have to ask yourself - is saving 8 months on a 30 year loan worth it? Since you need to consider that you are essentially "in the hole" for the first 43 months. That's about 3.5 years where your new loan hasn't done you any favors.

Given the way rates have risen, you are unlikely to get a new 30- year mortgage at the same rate, so you might not save anything. But you can save by paying extra each month, without refinancing, and get PMI to drop off sooner.
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Old 05-09-2018, 04:10 PM
 
Location: Back in the Mitten. Formerly NC
3,806 posts, read 4,749,102 times
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Odd-year mortgages are out there. I know Quicken Loans has a program for this. I just Googled it to make sure it still exists: https://www.quickenloans.com/home-lo...tgage-yourgage
I'm sure there are other lenders, too, I just don't remember ever seeing an advertisement for it.
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Old 05-10-2018, 05:26 AM
 
2,619 posts, read 2,745,839 times
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Quote:
Originally Posted by ncole1 View Post
Given the way rates have risen, you are unlikely to get a new 30- year mortgage at the same rate, so you might not save anything. But you can save by paying extra each month, without refinancing, and get PMI to drop off sooner.
I'm in agreement. The OP was questioning what I meant by "break even." I don't know his scenario, but in all likelihood, going to a higher interest rate to get out of PMI would not benefit him - unless going to a 15-year would give him the same interest rate he has now.
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