Posted on: 03rd Dec, 2009 01:55 pm
my current mortgage is at 5.875 with no pmi and i owe 490,000. my loan to value ratio has dropped over the past five years to over 90%. i have excellent credit, but also owe about 70,000 combined in college loans, line of credit and credit cards. i understand that to get a rate worth refinancing for, 4.875, i would only be eligible for an fha loan. however this requires a pmi payment at closing of 8700 and then an additional 226 per month mpi, which i haven't had to pay in years. the net decrease in my payment would be about 150, so it looks like six years to pay off the cost of closing, plus the mpi. is it worth it to refinance?
Hi squinlan,
You'll have to decide as to how long you want to stay in the property. You've mentioned that it would take a minimum of six years in order to offset the closing costs. If you plan to stay in the property for the next 8-10 years, then it would be a better option to refinance the loan. However, if you're planning to leave the property soon, then it's better not to go for it.
You'll have to decide as to how long you want to stay in the property. You've mentioned that it would take a minimum of six years in order to offset the closing costs. If you plan to stay in the property for the next 8-10 years, then it would be a better option to refinance the loan. However, if you're planning to leave the property soon, then it's better not to go for it.
the benchmark in analyzing the worth of refinancing versus costs is usually 3 years maximum. you're looking at 6 years, way outside that guide.
based on that, and unless you plan on staying in the home for many years to come, it would seem fruitless to go through with the refinancing plans.
based on that, and unless you plan on staying in the home for many years to come, it would seem fruitless to go through with the refinancing plans.
Ditto
The reason it will take so long to break even is that now my loan to value ratio is so low, I have to tack on about 8700 in PMI at closing, in addition to adding a 226 monthly PMI, which changes a 465 monthly savings into only about 230 net benefit. I'd like to have the option of staying here long term, so the lower rate looks attractive. However what are the chances of being able to afford such a high payment on retirement income? *sigh*.
We would need a lot more details guest.
what's retirement? is that something like "out to pasture"?
Sorry to confuse...I'm squinlan but appear as "guest" above because I can't figure out this post system. Above I was just adding information. Since my home value declined to a 90% loan to value, in order to refinance, now I am required to pay $8,700 premium for PMI at closing and an additional $226 in monthly PMI. So instead of the refinance reducing my monthly payment by about $400, it would only decrease about $200. In time, if the house value rises to my original purchase price, I'd have to pay for a new assessment to drop the PMI. So the cost of refinancing would be about 14,000...hence it would take six years to do so.
squinlan, when you come on the site, you ought to be able to see, in the upper right hand corner, a "login" under "Members Area" description. this will enable to you to enter your login and password and get your posts credited properly. hopefully, you'll find that.
you're right in saying that you'll have a 5-6 year period before you compensate for the closing costs with your monthly savings. that goes against the common assumption that it's worthwhile to refinance if you'll save the money back within 2-3 years.
having said that, i guess we'd all probably agree it's not worth it to refinance. but of course, this is an individual decision you'd have to make, so you certainly can use your own logic to do that.
you're right in saying that you'll have a 5-6 year period before you compensate for the closing costs with your monthly savings. that goes against the common assumption that it's worthwhile to refinance if you'll save the money back within 2-3 years.
having said that, i guess we'd all probably agree it's not worth it to refinance. but of course, this is an individual decision you'd have to make, so you certainly can use your own logic to do that.