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I live in Cali. Bay area, we are not thankfully in dire financial straits, unlike many of our neighbors), I have an FHA streamline we signed in Dec. 2010. It was maxed at 730K. Rate 3.875% Arm with first reset in 5 years, 1 % max per year with reset max of 8.75% length of loan. We started out paying a MIP of $550 a month .
Wife and have very good credit, over 800, we have gotten calls etc et. Refi, I can get a rate of 4.75% for a 30 yr. fixed( loan amount 683K).
Though the fixed rate sounds attractive, I am loath to fall into what appears to be a ‘fixed re-fi’ trap(?) again.
Looking at the amortization schedule in our Hud packet, we are at payment 44, when we hit payment 64, we start to flip interest vs. principal payments, the amount to each evens out to 50-50 and dropping further in principals favor there after , instead of 2 to 1, plus for a reasons I cannot find in my mortgage papers, at that 64th payment, the payment drops by $430 bucks……..(???)
Our MIP has been dropping due to interest paid, it will be at $509 at payment 64.
The reasons we are thinking about the refi are; getting rid of the MIP now, and the fixed rate.
However; we plan on selling in 2026 come hell or high water. That’s our window. We’d like to build what equity we can and IF we refi now, we start back at payment #1, low end 2 to 1 interest to principal payments and we will be way off with what we see as final debt . on the house in our current schedule than a new one.
Our thinking on the interest rate is, ok, reset 1 time a year max of 1% per. If we refi now we would start paying 4.75% now, even with the MIP of $509 gone we are due to the higher rate- paying back $325 of that in the higher rate, so the net is $184. BUT that increase could only come in June of 2016….even if it’s a 1 % increase at that time, that would just about put us at what our new rate would be paying NOW if we refi, 4.75% vs now 3.875%.
Mortgage (ARM) Indexes: Constant Maturity Treasury Index (CMT) when we signed our loan in Dec. 2010 it was 3 full times higher. Looking around now and trying to read the tea leaves, that yield would have to blow up big time in June 2016 and there after to keep pushing our rate higher in our present loan. With the ongoing payments we are making the rates changes would be smaller naturally and not something would could not handle and of course, on the present schedule our mip drops off entirely ( it never gets lower than $448) in 2019 as we hit the FHA 78% LTV.
IMHO, this refi is a trap, I am only thinking of it because; a) the vaunted ‘get a fixed’ rally cry, b) I am offended at paying what I consider ‘dead money’ of MIP payments which don’t help us at all interest or principal wise, c) short term monetary gain as in the difference in dropping the MIP entirely and the new rate.
ANY comments welcome, am I missing something? I was dumb enough to refi 4 times in 12 years to push myself this far out on the age to retirement=home equity curve ( and fully deserve whatever comes my way for doing so), so any advice/remarks thoughts out load would be welcome……
Oh and does anyone have any input as to why my payments drops by $430? I am thinking it was some kind of premium added on with a fixed sunset at payment 64? Thank you!!!
You've left off some critical information - what is your home's value?
Does your quote of 4.75% have a healthy lender credit for closing costs?
Did you look at a 20 year or 15 year loan?
Did you consider that interest is tax deductable and PMI is not if your income is over 100K?
That said, it is entirely possible to become paralyzed with the calculations. I could throw in other variables that could push you over the edge. For example, did you know the various agencies Fannie, Freddie, FHA) set their maximum loan amount each year, at the beginning of the year? For the past two years, they've tinkered with them minimally, so not to cripple the housing industry, but the mood has been to lower those limits. Or, right now, when you refinance an FHA loan, you have to pay interest for the entire month that you pay off the loan, but after January 1, 2015, HUD will no longer collect interest beyond the payoff.
You need to focus on the cost of the refi, first, and calculate the break even point (outside of amortization). If you really are concerned with the amortization, don't replace your 30 year mortgage with another 30 year mortgage. But I think, as you have come to realize, even no action may be the best action, or, no harm may be done. The biggest downside to your current situation is you are in an ARM. But you also have an ARM that could be a very attractive assumption come time to sell......
Personally, after reading your post, I would recommend you do not refinance until the numbers scream, "are you crazy? Of course you have to refinance!" Prepay an ARM mortgage as much as you can and you will see your amortization excelerate and wonderful things happen when that payment adjusts for the new ARM rate.
My prospective lender says the closing is not an issue.( I will clarify exactly what that means when I see him)
No we have not looked at a 15 or 20 ( I was going to sit down with my mort. guy after airing this out and playing devils advocate)
Yes sir, I got a letter from my present mort. co. re: that as of Jan this past year PMI is no longer tax deductible for our income range.
Re: your last comment; absolutely, we plan on standing pat on the $ ammount we are paying now, any further drops even the $48 Mip drop, we send in as a principal only payment(s) and further MIP reductions down the road will do same......
On that note; I have read as best I can my hud, reviewed every page, for a reasons I cannot find in my mortgage papers, at that 64th payment, the payment drops by $448 bucks…I don't see the reason why...I'd love to flip that to principal only to when the time comes.
I think you read my post right, no, there is no huge pull for us to do this, if we could not afford the mip that would be academic, but, we can as much as I see it as dead money anyway, its my fault in any event and I have to suck it up.
Since you know for sure you want to sell in 2026, look ahead on your amortization schedule and see what you will owe at that time.
Create an amortization schedule for the new mortgage using Excel or an online calculator. If you keep making the same payments you are making now, where will you be in 2026? Would you be ahead or behind?
Go with whichever mortgage gives you the lowest balance in 2026, assuming the same monthly outlay.
Since you know for sure you want to sell in 2026, look ahead on your amortization schedule and see what you will owe at that time.
Create an amortization schedule for the new mortgage using Excel or an online calculator. If you keep making the same payments you are making now, where will you be in 2026? Would you be ahead or behind?
Go with whichever mortgage gives you the lowest balance in 2026, assuming the same monthly outlay.
Hello Petunia, yes thx I started out there, theres a huge difference, hence my hesitation
I was going to sit down with my mort. guy after airing this out and playing devils advocate)
I'd love to see your original balance 12 years ago before I pass judgement on your mortgage guy. Have you been using the same person over the last 12 years?
Is it a traps, did you push this too close to retirement, that is all subjective. In the last 12 years, you should have been reducing your monthly payment each time, where did the money go, did you save more, did you put more into your 401k? If you saved more, you can use that money to pay down the existing balance, but the problem many see with doing this, is that the cost to borrow that money is "cheap". So instead, they put the money in other places to make more than 4.5% on their cash. That is a thread that belong in the personal finance forum,
The numbers are screaming at me for a new new ARM or fixed since you are planning: 1) Building equity by paying more towards your principle. 2) Planning on selling your house 3) Have an FHA loan 4) In the Jumbo range now.
The 64th payment where interest = principal seems off.
Or, right now, when you refinance an FHA loan, you have to pay interest for the entire month that you pay off the loan, but after January 1, 2015, HUD will no longer collect interest beyond the payoff.
This only applies to loans that close on or after January 21, 2015. Existing loans still go by the same rule and interest for the entire month is owed regardless of closing date.
I'd love to see your original balance 12 years ago before I pass judgement on your mortgage guy. Have you been using the same person over the last 12 years?
Is it a traps, did you push this too close to retirement, that is all subjective. In the last 12 years, you should have been reducing your monthly payment each time, where did the money go, did you save more, did you put more into your 401k? If you saved more, you can use that money to pay down the existing balance, but the problem many see with doing this, is that the cost to borrow that money is "cheap". So instead, they put the money in other places to make more than 4.5% on their cash. That is a thread that belong in the personal finance forum,
The numbers are screaming at me for a new new ARM or fixed since you are planning: 1) Building equity by paying more towards your principle. 2) Planning on selling your house 3) Have an FHA loan 4) In the Jumbo range now.
The 64th payment where interest = principal seems off.
thank you for your thoughts Lopez, the starting balance was 732.000.00 .
I have the Amort. schedule they gave me right in front of me,#64- (I misspoke to $40.00), the interest portion is 1577.00,(down from 2130.00) the principal payment is up to 1523.00(from 1320.00)......the balance to flatten the figures is due to a drop in my interest portion of the payment dropping from the month before #63) by 349.00.....which I can keep, but will apply to principal.
thank you for your thoughts Lopez, the starting balance was 732.000.00 .
I have the Amort. schedule they gave me right in front of me,#64- (I misspoke to $40.00), the interest portion is 1577.00,(down from 2130.00) the principal payment is up to 1523.00(from 1320.00)......the balance to flatten the figures is due to a drop in my interest portion of the payment dropping from the month before #63) by 349.00.....which I can keep, but will apply to principal.
It looks like they are using about 2.77% interest rate when it adjust for the payment to drop that much. If your MIP is low and you make extra principal payments, Smartmoney is right, you'll have an attractive loan.
So between now and payment #64you'll have paid close to $10,000 in MIP
If rates do go up your 78% LTV gets pushed further away.
Last edited by thelopez2; 09-10-2014 at 08:54 AM..
Hello Petunia, yes thx I started out there, theres a huge difference, hence my hesitation
Why do you feel hesitant? Which one is more advantagous to you?
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