FHA Refinance - Worth it? honest opinions Needed

[Mido]

Hello CV and everyone,  Wanted your brutal opinion because I am in the process of refinancing my FHA loan and just received the loan closing disclosure (CD) today but wanted to know if I'm doing the right thing and/or its worth it or Not.

 

My current FHA loan as follows:

Appraised Property Value $400K

Current Loan interest rate is 3.25% (closed this loan 13 months ago) 

Original Loan Amount $393K
Current Principal Balance $383K (30yrs loan and nearly 29 yrs left).

Loan Maturity date 08/2049 

Current Monthly payment $2400 (Principal $671+ Interest $1,038 + Escrow $690)

 

VS.

 

My FHA refinance loan will be as follows:

Appraised Property Value $400K

New Loan interest rate is 2.75%  

Original Loan Amount $387K
Principal Balance $387K (30yrs loan).

Loan Maturity date 11/2050

New Monthly payment $2391 (Principal + Interest = $1,582 + Escrow $542 + PMI 267)

Cash to close from borrower (me) $2089

 

Thank you all for your feed back.

[8ball]

I wouldn't refinance to save $9 bucks. You will eventually get rid of the PMI but there are loan products with conventional loans that don't have PMI. Will you be eligible for a conventional loan within a year or so?

[cv91915]

How are you not paying PMI now?

[Mido]

3 hours ago, cv91915 said:

How are you not paying PMI now?

There's a PMI I just don't see it. I'm positive there is 

I guess my goal is to significantly save on the interest rate from 3.25% to 2.75% thru the loan term and since i am planning to live in this property for the next 5-10 years.

[Mido]

4 hours ago, 8ball said:

I wouldn't refinance to save $9 bucks. You will eventually get rid of the PMI but there are loan products with conventional loans that don't have PMI. Will you be eligible for a conventional loan within a year or so?

You're right and I'm not in it just to save $8.00 monthly but I was thinking if its worth it thru the loan term (30 years) to save on the interest rate from 3.25% to 2.75% thru the loan term especially the closing costs aren't that bad and also since I'm planning to live in this property for the next 5-10 years.

I dont think i would be eligible for a conventional loan in a year or so. Maybe longer but definitely not a year.

[Mido]

4 hours ago, cv91915 said:

How are you not paying PMI now?

@cv91915 My October Mortgage statement shows $265 Insurance Premium Disbursement. This is the PMI am I correct? 

[cv91915]

1 hour ago, Mido said:

There's a PMI I just don't see it. I'm positive there is 

I guess my goal is to significantly save on the interest rate from 3.25% to 2.75% thru the loan term and since i am planning to live in this property for the next 5-10 years.

The numbers you posted make it impossible to compare the two options.

 

Escrow is a red herring, as your insurance and taxes won't vary based on whether you refi or not.

 

Shouldn't your PMI go down with a new loan since your loan balance and LTV are lower now?

 

In order to effectively compare, add up the interest + PMI you'll pay on your current loan over 5 years and over 10 years, then do the same with the new loan terms (lower interest rate and new PMI amount).  

 

I didn't recalculate your payment amounts so I'm relying on your numbers, but your P+I is going down by $127/month (but that includes principal repayment, so you need to isolate the interest portion).

 

 

Edited October 27, 2020 by cv91915

[Mido]

Let me do that .

So just add up the interest + PMI for 5yrs and 10yrs (current loan) and do the same for the new loan. The escrow shouldn't be in calculation. am i correct?

 

[Mido]

@cv91915 Am I doing this correctly??

 

Current loan:

Interest 1,040.11+ 265.36 PMI = 1305.47 x 60 = 78,328 (5yrs)

Interest 1,040.11+ 265.36 PMI = 1305.47 x 120 Months = 156,656 (10yrs)

 

New Loan:

P&I  1582.13 + PMI 267.11 = 1849.24 x 60 months = 110,954 (5yrs)

P&I 1582.13 + PMI 267.11 = 1849.24 x 120 months = 221,909 (10yrs)

[cv91915]

1 hour ago, Mido said:

Let me do that .

So just add up the interest + PMI for 5yrs and 10yrs (current loan) and do the same for the new loan. The escrow shouldn't be in calculation. am i correct?

 

Interest and PMI should be the only variables.  

 

An amortization schedule with cumulative interest makes this a pretty quick exercise.

 

Here's one for Excel:  https://www.vertex42.com/ExcelTemplates/simple-amortization.html 

 

[cv91915]

1 hour ago, Mido said:

@cv91915 Am I doing this correctly??

 

Current loan:

Interest 1,040.11+ 265.36 PMI = 1305.47 x 60 = 78,328 (5yrs)

Interest 1,040.11+ 265.36 PMI = 1305.47 x 120 Months = 156,656 (10yrs)

 

New Loan:

P&I  1582.13 + PMI 267.11 = 1849.24 x 60 months = 110,954 (5yrs)

P&I 1582.13 + PMI 267.11 = 1849.24 x 120 months = 221,909 (10yrs)

No.  Remove the principal portion of the payments (amortization schedule helps - see previous post).  The interest amount goes down every month.

[hegemony]

what are you trying to accomplish? refis have costs, real and transactional.

[Mido]

2 hours ago, hegemony said:

what are you trying to accomplish? refis have costs, real and transactional.

Saving interest on the long run. from 3.25% to 2.75%

[Mido]

4 hours ago, cv91915 said:

No.  Remove the principal portion of the payments (amortization schedule helps - see previous post).  The interest amount goes down every month.

@cv91915

Did I get that right?

 

Current loan:

Interest 1,040.11+ 265.36 PMI = 1305.47 x 60 = 78,328 (5yrs)

Interest 1,040.11+ 265.36 PMI = 1305.47 x 120 Months = 156,656 (10yrs)

 

New Loan:

Interest 888.13 + PMI 267.11 = 1155.24 x 60 months = 69,314 (5yrs)

Interest 888.13 + PMI 267.11 = 1155.24 x 120 months = 138,629 (10yrs)

 

Saving on interest Current VS New:

$78,328 - $69,314 = $9014 (5 yrs) = $1803/yr saved in interest = $150/mo saved on interest.

$156,656 - $138,629 = $18,027 (10 yrs) = $1803/yr saved in interest = $150/mo saved on interest.

[hegemony]

you can simply properly accelerate principle to have the same effect and thereby avoid the cost and hassle of the refi, especially since it is only a half a percent difference. To see what I mean, use an amortization calculator and see how simply adding another $200 in principle can greatly shorted the term AND result in less interest. roughly based on your numbers just $200 more properly assigned to principle a month reduces your term by almost 5 years and saves about 36k in interest over the term.

 

if the refi meant you'd get rid of PMI and or shorten the term then perhaps the .5% reduction makes sense.

 

don't let a mortgage broker talk you into generating business...

Edited October 27, 2020 by hegemony

[Mido]

you can simply properly accelerate principle to have the same effect and thereby avoid the cost and hassle of the refi, especially since it is only a half a percent difference. To see what I mean, use an amortization calculator and see how simply adding another $200 in principle can greatly shorted the term AND result in less interest. roughly based on your numbers just $200 more properly assigned to principle a month reduces your term by almost 5 years and saves about 36k in interest over the term.
 
if the refi meant you'd get rid of PMI and or shorten the term then perhaps the .5% reduction makes sense.
 
don't let a mortgage broker talk you into generating business...

Thx hegemony. At some point I felt like doing it so I don't look bad in front of the loan officer but honestly who cares? Your approach makes sense to me.
They are adding $4000 extra on the loan from $383K to $387K and another 15 months to the loan maturity date from 8/2049 to 11/2050 and also those closing costs of $2000+ all for $8 less a month and only 0.5% less and on top still keeping the PMI. I'm now convinced that this is refinance isn't the greatest option at the moment.

Sent from my SM-G892U using Tapatalk

[hegemony]

2 hours ago, Mido said:

Thx hegemony. At some point I felt like doing it so I don't look bad in front of the loan officer but honestly who cares? Your approach makes sense to me.
They are adding $4000 extra on the loan from $383K to $387K and another 15 months to the loan maturity date from 8/2049 to 11/2050 and also those closing costs of $2000+ all for $8 less a month and only 0.5% less and on top still keeping the PMI. I'm now convinced that this is refinance isn't the greatest option at the moment.

Sent from my SM-G892U using Tapatalk
 

well since you said reducing interest over the term is your goal this is a way to do it without paying for refi. It also offers some flexibility as you can increase the extra principle as you get raises, bonuses, win the megabuckets, etc.

 

of course... you could do both.

Edited October 27, 2020 by hegemony

[cv91915]

That Excel template link isn't the one I intended to post.  

 

Try this one and just add up the interest over 60 vs. 120 months.

 

https://www.vertex42.com/Calculators/home-mortgage-calculator.html  

 

Over 5 years:

 

383,000 balance for 60 months at 3.25% = 59,055 in interest (current run rate)

383,000 balance for 60 months at 2.75% = 49,753 in interest (if refinanced)

 

Total interest savings = (59,055 - 49,753) = $9,302

 

Over 10 years:

 

383,000 balance for 120 months at 3.25% = 118,895 in interest (current run rate)

383,000 balance for 120 months at 2.75% =  93,020 in interest (if refinanced)

 

Total interest savings = (118,895 - 93,020) = $25,875

 

The PMI difference is nominal, but easy to calculate, and don't forget to subtract out the transactional costs of the refi to see your actual savings, but with either the 5- or the 10-year ownership window, you'll easily come out ahead.

 

Double check all of my quick calculations and conclusions on your own to make sure I didn't make any mistakes.

 

 

Edited October 28, 2020 by cv91915