Post # 1
My husband keeps pushing for us to refinance and get rid of our pmi. I understand that it’s money not being applied to the down payment, and therefore kind of just pissing money away each month, but I’m not entirely sure that refinancing would actually save us money. FYI- I will probably sound like a moron. So.. our pmi is about $200 currently. We bought our house last year for $280 and have an interest rate of 3.65%. Rates have gone up, and if we refinance, it will be at the new, higher rate. Still, we will probably save $100-150 a mo? These are seriously rough estimates. However, my issue is that we would be paying our loan officer something like 6k to refinance- at least this is my husband’s estimates. My husband says this is fine and would just be added to our overall cost, but to me- I’m thinking damn, that’s 6k. Even if we saved $150 a month, it would still take us 40 months to pay that back. So, essentially for 40 months, we’re taking the money we are saving from not paying any more pmi, but using it to pay off our refinancing. And then, by that time maybe we’ll want to refinance again and start all over.
I know this is a super scrambled thought, but I’m so confused. I also know it depends a lot on how much we would we saving/interest rate/etc., but my general question is basically- isn’t the money we’re saving on a pmi just going to the loan officer who refinances us? Is it really worth it then?
Post # 2
missfrillycoat: Your intuition may be correct.
I may be incorrect, but is sounds like your Darling Husband is more interested in improving cashflow (the amount of money you have to pay out each month) rather than reducing the actual total amount of money it takes you to finally finish paying your morgage. This is not necessarily bad or wrong, but it sounds like the way you are prioritizing is opposite. Sounds like it may be a mismatch in the end goal that needs to be negotiated.
When you refinance, do you plan to extend the terms of your morgage? For example, do you have 20 years left now, and after refinancing you’ll have 25 years left to pay?
Post # 3
cbgg: Thank you for responding. My SIL actually sat down with me last night and kind of walked me through it. Essentially we’d have to pay 6k up front, but with our mortgage set up the way it is, it would save us 12k by the end of ten years (and even if we leave early, we wouldn’t do so before 2.5 years- which is when our savings from dropping our pmi would cover the costs of refinancing- while at the same time making our monthly payments lower the meanwhile.)
Post # 4
The loan officer should be able to show you the calculations and amortization schedules to see which is going to be saving you more money in the long run and how much equity you will have in the house in x number of years. Like the poster above said, refinancing options really depend on your end goal, i.e. Extending the term to lower your payments vs. paying down your principal faster.
That said, do you know what your loan to value is currently? If you are not under 80% now, you will still likely have PMI on most mortgage products. I’m not sure what area you are in, but you could also look around to see if anyone is doing refinance specials. A bank in my area is doing a refinance special with no closing costs (including appraisal and all additional fees) and no prepayment penalty. They also have several different mortgage options, including conventional, ARMs, and some other types that are specific to that bank. Some other banks in the area have similar specials, but with strings, such as prepayment penalties, or you have to have a checking account, etc, so be careful to read the fine print.
We are looking in to refinancing our house from a 30 to a 15. Our interest rate would be only slightly lower and our payment would be a little more, but with no costs to recoup, we would gain equity in the house so much faster (We would also be getting rid of PMI). Since we plan on moving in a couple years, this will make a difference in the down payment for our next home. We would save even more with an ARM, but since we aren’t 100% on when we will move, we feel better with a fixed rate in case we stay in this house longer that we currently plan.