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I have been searching for an answer to this question for a while but surprisingly it is not that easy to find the answer. This is strange as I consider it an important factor in deciding to refinance or not.
My scenario is that I am considering refinancing my 30-year fixed loan which was taken in 2008. Currently it is scheduled for PMI to be canceled in June 2017 which is where balance will reach %80.
If I refinance for a term of 26 years the PMI will be the same amount as before (not sure how it is calculated). My question is, when will it be canceled? In June 2017 or when it hits the %80 mark for the new loan (July 2020).
Thanks. I think I got it. So the PMI is based on the appraisal and if the refinance is without a new appraisal, nothing is going to change. Can you please tell me what is this 5-year wait? Is it starts from the time I do the refinance?
Yes, on FHA loans with terms greater than 15 years...regardless of loan to value you are required to pay MI for 5 years from the date of the loan. So, if you bought 10 years ago, and refi now to a fha loan, you have to pay MI for at least 5 more years.
Original mortgage loan (Fannie Mae) taken in 2006 for $ 205K at 5.99%. (30 yr fixed). PMI is $ 103/month. Remaining balance right now is $ 190K.
My lender says I can refinance now and my appraisal came in for $ 154K. Under HARP 2.0, I can refi since LTV came to > 125%.
New loan terms would be: $ 190K at around 4.875% (30 yr fixed). PMI remains $103/month.
PMI will still have to be attached to the new loan, but does that mean PMI drops off when the mortgage reaches 80% LTV of the appraisal price ($154K) or the loan amount ($190K)??
If I chose NOT to refinance, then PMI would still be removed when I reach 80% LTV of the ORIGINAL loan $205K), right?
Wrong. First it is based on the appraisal and not loan amount. Second according to the broker I just talked to they are not going to drop it automatically and they will very likely appraise the value to make sure you have paid it down to %80 of the CURRENT VALUE. I don't like it but it makes sense.
Were you planning to refiance for 25 years or another 30 years? I don't think it is wise to do for another 30 years. Consider a 15 years. Your rate probably goes down to 3.85 and your PMI will drop even sooner than the original loan. That is what I have decided to go with but you have to watch your payments don't go over 20% or original otherwise you will not qualify.
Original mortgage loan (Fannie Mae) taken in 2006 for $ 205K at 5.99%. (30 yr fixed). PMI is $ 103/month. Remaining balance right now is $ 190K.
My lender says I can refinance now and my appraisal came in for $ 154K. Under HARP 2.0, I can refi since LTV came to > 125%.
New loan terms would be: $ 190K at around 4.875% (30 yr fixed). PMI remains $103/month.
PMI will still have to be attached to the new loan, but does that mean PMI drops off when the mortgage reaches 80% LTV of the appraisal price ($154K) or the loan amount ($190K)??
If I chose NOT to refinance, then PMI would still be removed when I reach 80% LTV of the ORIGINAL loan $205K), right?
The new mi would be based on new appraisal(154k)...so you will be paying until your loan to value is at 80% of 154k.
Secondly...4.875% is a very bad offer. find a new lender, preferrably a broker. You should get a much better rate.
Lastly, i would still refinance. Even though you will be paying MI for much longer..you will be able to drop your interest rate well over 1%. The interest savings there would more than offset the added years of MI. Also, how do you know you will be in the house long enough for the current MI to fall off? On average people are still moving about every 6 to 8 years. One more thing, PMI is not as ugly as it used to be. If your family income is under 105k..PMI is tax deductible.
The reason the rate is 4.875% is because its an investment property (condo that is being rented out since I moved into my husbands house). My bank says the LOWEST rate I can get is 4.75% because of this.
As for PMI tax deduction, my husband and I make too much to qualify for it (combined income is almost $200K).
I have tried shopping around with another bank/lender but then won't I have to pay a mortgage transfer tax or some fee because the mortgage is being transferred?
What are your thoughts on getting 2 mortgages to avoid PMI? I know its only $103/month but its just the principle of the thing, know what i mean?
PS I cant refi to a 25 year fixed or even a 15 year fixed because the monthly payments are just too high. My goal in refinancing right now is LOWERING my monthly payment as much as possible so that my husband and I can save more $$ toward a downpayment for a future home (my husband's home is in his name and he has over 65% equity in it). I plan to sell the condo in 5-8 years anyway.
Last edited by LegalDiva; 12-21-2011 at 01:19 PM..
a knowledgable loan officer i know from another state told me he has done this with clients. Before they would refi, they would prepay current mortgage to 80% of the original value. The current servicer would then cancel MI and notify the MI company that policy was cancelled. MI company sent confirmation to them that MI had been canceled and this confirmation was used in underwriting.
Under HARP, if the current loan does not have MI, the new loan does not have MI no matter what the value. So if you have some cash available to bury into this property, you could give this a try. Make sure you contact your servicer and ask them if they will remove if you prepay to 80% of the original value.
here is kind of a step by step:
1. call to confirm that it's fine first, to verify no obstacles and get fax #. 2. prepay to 80% 3. send letter 24hrs after prepay. 4. call to get wheels in motion for MI cancel. 5. call MI company and notify them they're getting a that request from the servicer and kindly ask to be cc'd on the correspondence for prompt loan approval.
a knowledgable loan officer i know from another state told me he has done this with clients. Before they would refi, they would prepay current mortgage to 80% of the original value. The current servicer would then cancel MI and notify the MI company that policy was cancelled. MI company sent confirmation to them that MI had been canceled and this confirmation was used in underwriting.
Under HARP, if the current loan does not have MI, the new loan does not have MI no matter what the value. So if you have some cash available to bury into this property, you could give this a try. Make sure you contact your servicer and ask them if they will remove if you prepay to 80% of the original value.
here is kind of a step by step:
1. call to confirm that it's fine first, to verify no obstacles and get fax #. 2. prepay to 80% 3. send letter 24hrs after prepay. 4. call to get wheels in motion for MI cancel. 5. call MI company and notify them they're getting a that request from the servicer and kindly ask to be cc'd on the correspondence for prompt loan approval.
I thought of this but the idea of cutting a check for $ 26K to get PMI cancelled (the loan goes down to $164K) is rather scary.
If I was going to do that, then what is the point of refinancing - I would just SELL my condo now, cut the check for the deficiency (since I am sure I could sell it for at least $160K) and move on with my life with ZERO morggage payment!! so..its silly to be throwing that much $$ into it just to avoid PMI of $103/month...isnt it??
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