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Refi Advice - Eliminate PMI, but lose FHA DPA Grant


echovtg94
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Hello, we are looking for words of wisdom on our potential refi.  Have lurked on this forum for a few years and successfully pulled credit scores out of the low 500's into the 700's!  We purchased a home in AZ with FHA Down Payment Assistance in Feb 2021.  We have to pay a prorated portion of the grant back if/when we refinance or sell in the first 3 years.  Current interest rate 3.5, original loan balance 311k, prorated grant 9k remaining. PMI is $218/month, principal & interest is $1420.

 

Home has substantially increased in value to $437-470k.  We are considering a refinance, even though it would add 9k to the loan, because interest rates are only going up - and we feel motivated to lose the PMI while we can.  If we wait until grant is paid off, mortgage rates will be much higher, and home values could drop.  

 

Family member was our realtor and thinks we are insane to eat the 9k and refi.  Looking for a neutral 3rd party to help us objectively consider the decision.  Thank you!

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I would just run the numbers of total costs (upfront and interest) and pmi) to keep current loan with PMI, vs. Total Cost (upfront and interest) of Refi and see which one costs less money.  As you say, the interest could go up and/or value go down in the future, so best comparison you can do it what you have today vs what you can refi into today.  

 

 

I had a similar DPA Grant, but the period was 10 years.  It made sense for me to refi after 3 years to rid myself of the PMI, at the time for same payment amount (even with the increased balance), I was able to refi into a 20 year loan (When I had 26 years left to pay)..   Then I ended up doing another refi in January of this year, lowered payment, and dropped term to 15 years.   

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On 1/11/2022 at 3:41 PM, echovtg94 said:

Hello, we are looking for words of wisdom on our potential refi.  Have lurked on this forum for a few years and successfully pulled credit scores out of the low 500's into the 700's!  We purchased a home in AZ with FHA Down Payment Assistance in Feb 2021.  We have to pay a prorated portion of the grant back if/when we refinance or sell in the first 3 years.  Current interest rate 3.5, original loan balance 311k, prorated grant 9k remaining. PMI is $218/month, principal & interest is $1420.

 

Home has substantially increased in value to $437-470k.  We are considering a refinance, even though it would add 9k to the loan, because interest rates are only going up - and we feel motivated to lose the PMI while we can.  If we wait until grant is paid off, mortgage rates will be much higher, and home values could drop.  

 

Family member was our realtor and thinks we are insane to eat the 9k and refi.  Looking for a neutral 3rd party to help us objectively consider the decision.  Thank you!

You'll recoup the 9K in 41 months by saving $218 per month. $9,000/$218 = 41.28.

You can also use some of your equity to buy down your rate, depending on how long you plan on staying in the home.

Rates are going up so I would jump on it ASAP. 

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