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Old 10-02-2015, 10:56 AM
 
12 posts, read 11,997 times
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Given the feds have stayed the course on interest rates, I thought I would see if I could refinance my investment property before rates increased.

I would like to remove my 95%/month PMI payment and lower my overall mortgage payment. My current rate is at 4.75% on a 30 yr fixed and I believe my LTV is at 92% or so (i am waiting for the appraiser's report).

I reached out to several lenders (including my current lender) who rejected my app said I didnt have equity except for 1 lender who told me they could work with me.

Based on what I was told, here are my options:

Option (1) : is to go ahead and refinance to lower rate to 4.33% (no points) and kick in $25K at closing to get loan balance down to 80% LTV, or

Option (2) : Do nothing and just pay down $25K outright to remove PMI on current loan. I'd have to pay it down to reach 75% LTV and hope the bank wants to remove PMI. (my loan was last refinanced in 2011 so under the 5 yr rule). There is no guarantee the bank would agree to 80% or even 78%. If I pay $25K now, I am OUT that money and could technically still be stuck w the PMI anyway.

If I refinance, the lowest rate I qualify for is 3.99% but I'd have to pay $1,900 for the point reduction. If I get my rate down to 4.125%, I'd have to pay $1,200 at closing for the discount point fee.

I have no plans to sell property at this time and would like to hold onto it for at least another 5 years because my current tenant loves the place. However, I dont have a crystal ball and if an emergency happens, I want to be in a position where I could sell the apartment and not have to kick in extra money at closing (right now, if I sold it, I'd have to pay at lesat $5-7K for RE broker's fee).

Option (1) also requires closing costs of about $5K but if I choose to refinance, my total mortgage payment would drop by $124/month (not including the PMI of $ 95) so total savings is $ 219/month.

What to do? Is it worth it? I hate paying PMI!

Last edited by AssociateX; 10-02-2015 at 11:06 AM..
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Old 10-02-2015, 01:37 PM
 
Location: MID ATLANTIC
8,169 posts, read 20,090,189 times
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Honestly? I would just stay where I am at and lie to myself and say I'm not paying PMI. If this were your primary, my advice would be way different, I'd tell you to refinance and get an 80/10/10 with 3.75% on the first trust and you would only have to kick in 2% and closing.

I am not an advocate of throwing money at an investment property unless you are in an IO ARM or a balloon because you are right; you will never get that money back out until you sell. I don't see any option here worthy of spending $25,000.

Repeat after me, "no, I do not have PMI in that loan."

This is an opinion and I'm sure others will disagree, likely the Dave Ramsey pupils that believe you need to be debt free, period. I am all for that, but we must make choices. If you are going to pay down 25K, do it on your residence. You can walk away from the investment and still have a home. You cannot do that with your primary. (This is why we have a rescission period on primary residences).

Good luck!
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Old 10-02-2015, 01:42 PM
 
Location: Austin
7,205 posts, read 19,025,062 times
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Hopefully you have a good CPA or you know how to do your taxes well, but every dime you put into the investment property should be a write-off. Why throw $25k at the property to not see it again for many years? No, it's not fun paying PMI, but you get to write it off as a business expense and that's a heck of a lot less than the numbers you mentioned above to pay it down and refi it.
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Old 10-02-2015, 01:45 PM
 
12 posts, read 11,997 times
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Quote:
Originally Posted by SmartMoney View Post
Honestly? I would just stay where I am at and lie to myself and say I'm not paying PMI. If this were your primary, my advice would be way different, I'd tell you to refinance and get an 80/10/10 with 3.75% on the first trust and you would only have to kick in 2% and closing.

I am not an advocate of throwing money at an investment property unless you are in an IO ARM or a balloon because you are right; you will never get that money back out until you sell. I don't see any option here worthy of spending $25,000.

Repeat after me, "no, I do not have PMI in that loan."

This is an opinion and I'm sure others will disagree, likely the Dave Ramsey pupils that believe you need to be debt free, period. I am all for that, but we must make choices. If you are going to pay down 25K, do it on your residence. You can walk away from the investment and still have a home. You cannot do that with your primary. (This is why we have a rescission period on primary residences).

Good luck!
Thanks, I appreciate your input! I am so undecided - I have to edit my OP to reflect that I would be saving more than $ 219/month. More like $ 435-500/month. Just wondering if its worth kicking in $25K to get that peace of mind so to speak (plus it frees up the monthly cash flow).
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Old 10-02-2015, 01:59 PM
 
12 posts, read 11,997 times
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Quote:
Originally Posted by FalconheadWest View Post
Hopefully you have a good CPA or you know how to do your taxes well, but every dime you put into the investment property should be a write-off. Why throw $25k at the property to not see it again for many years? No, it's not fun paying PMI, but you get to write it off as a business expense and that's a heck of a lot less than the numbers you mentioned above to pay it down and refi it.
Good points. My husband does our taxes using H&R Block Software. We do claim expenses and depreciation on the property. Biggest mistake was buying it in 2006 with less than 20% down, and after 2008 - the value dropped about $60K. I planned to sell it since I got married and was moving into my husband's home (which happens to have almost no mortgage on it) but there was no way I had any equity to sell at the time. I aas able to refi in 2011 under HARP 2 and then saw interest rates would spike in 2016, so reached out to banks to remove PMI because since 2011, I have paid down the loan an additional 40K in principal (thanks to generous raises at work). Parents dont want me to sell it because they figure in 20 years, I could be making a decent profit on it..Ugh.

But it kills me to have this monthly nut now as I stll am paying double mortgage payments and now rates will go up again next year essentially killing any chance of refinancing at all...
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Old 10-02-2015, 03:20 PM
 
13,324 posts, read 11,036,557 times
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Quote:
Originally Posted by FalconheadWest View Post
Hopefully you have a good CPA or you know how to do your taxes well, but every dime you put into the investment property should be a write-off. Why throw $25k at the property to not see it again for many years? No, it's not fun paying PMI, but you get to write it off as a business expense and that's a heck of a lot less than the numbers you mentioned above to pay it down and refi it.
Never, ever spend a dollar to save a quarter.
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Old 10-02-2015, 05:43 PM
 
Location: Southern California
4,453 posts, read 5,773,529 times
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How much is the loan amount?

If there was no mortgage how much $ would you net a month?

You're paying $1200 a year in PMI, the loan will cost $6900 in fees.
How much interest will you save in the first couple of years, just to tack another 4 years on your loan?

The property dropped $60k did the value go back up, if not they'll use the lower of appraised value to determine if PMI is required.
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Old 10-03-2015, 06:55 AM
 
Location: Austin
7,205 posts, read 19,025,062 times
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Quote:
Originally Posted by ncole1 View Post
Never, ever spend a dollar to save a quarter.
Paying the dollar to save the quarter costs a heck of a lot more than paying $25,000 plus the $5000 in closing costs to not pay the dollar.
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Old 10-03-2015, 08:47 AM
 
12 posts, read 11,997 times
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Quote:
Originally Posted by thelopez2 View Post
How much is the loan amount?

If there was no mortgage how much $ would you net a month?

You're paying $1200 a year in PMI, the loan will cost $6900 in fees.
How much interest will you save in the first couple of years, just to tack another 4 years on your loan?

The property dropped $60k did the value go back up, if not they'll use the lower of appraised value to determine if PMI is required.
The new loan (if I refinance) would be $120-130K at 4.33%. My current balance on the loan is a little under $150K. My tenants rent payment covers my current mortgage payment but I have to kick in an extra $400/ month for HOA and insurance. If I refinance, my monthly payment with HOA/insurance would leave me with a $50-100 "extra" each month as the rental income would be higher than cost of owning.

I dont know how much the property will appraise for but the comps show 2 sales in the same building complex in the past year. $135K sold in 10/2014 (short sale?) and $155K sold in 8/2015. The highest sale was $188K in May 2015 but that apartment was in another building complex 3 blocks away. When I refinanced in 2011, it appraised for $154K. When I bought it in 2006, It appraised at $205K. If the unit appraises for less than $160K, the bank will prob reject my app anyway so this could all be just a waste of time

Last edited by AssociateX; 10-03-2015 at 08:55 AM..
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Old 10-03-2015, 11:44 AM
 
Location: Austin
7,205 posts, read 19,025,062 times
Reputation: 9813
Quote:
Originally Posted by FalconheadWest View Post
Paying the dollar to save the quarter costs a heck of a lot more than paying $25,000 plus the $5000 in closing costs to not pay the dollar.
This should have said "...costs a heck of a lot LESS..."
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