Mortgage Question

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rynocpd
Posts: 6
Joined: Tue Jan 07, 2014 7:17 pm

Mortgage Question

Post by rynocpd »

I have an FHA mortgage at 3.75%, 343,000 total loan, started back in January 2012
I currently pay mortgage insurance of 325 per month, which is not tax deductible
I'm required to pay the mortgage insurance for at least 5 years and it will not be removed until
the original loan to value reaches 78% or approx 267,000. I'm currently at 325,000.

My payment is 2350 (including taxes/ ins) but I've been paying an extra 150 a month since i got the loan.

My house value is at approximately 500k but I cannot currently refinance until at least July due to a
short sale I had on another home. With interest rates rising I'm not sure refinancing will be a good
option when its available too me.

My plan is to pay an additional 500 to 600 a month against my principal over the next 3 + years to try
and pay the loan down to get rid of the mortgage insurance. My calculations indicate I will save roughly 15-20k
by going this route.

Is this a good plan or should I be putting my money elsewhere or just refinance when I can and eat the higher interest.

Thanks for the advice...
MichaelM24
Posts: 165
Joined: Fri Jan 03, 2014 5:45 pm

Re: Mortgage Question

Post by MichaelM24 »

You had a short sale and then you bought another house?

$4000 per year for PMI is crazy. PMI is usually waived when you have 20% equity not 80%. I thought PMI was at least deductible.


I would sell the house and rent.
MindBogler
Posts: 1446
Joined: Wed Apr 17, 2013 12:05 pm

Re: Mortgage Question

Post by MindBogler »

MichaelM24 wrote:You had a short sale and then you bought another house?

$4000 per year for PMI is crazy. PMI is usually waived when you have 20% equity not 80%. I thought PMI was at least deductible.


I would sell the house and rent.
FHA MIP may be removed when the home reaches 78% LTV which means you have 22% equity (just as the OP indicated). MIP on newer (~1.5 year old -- not looking up the exact date) FHA loans continues as long as the mortgage remains. MIP is tax deductible but there is an income phase-out beginning at 100k -- and that deduction may not survive future budget negotiations.

I'm not sure I exactly understand why the OP can't refinance. Is it a creditworthiness consideration due to the short sale? MIP is obviously a terrible deal and you want to be rid of it any way you can. One way I would try to look at the MIP is to add it to interest costs of the mortgage and calculate the equivalent interest rate. That becomes your "risk free" return if you pay additional payments to rid yourself of MIP.
VgSince1982
Posts: 136
Joined: Sat Nov 28, 2009 10:29 am

Re: Mortgage Question

Post by VgSince1982 »

You are lucky to have the ability to cancel the monthly Mortgage Insurance Premiums (MIP).

Based on your purchase date, you are paying either 1.10% or 1.15% per year on the MIP (percentage of the outstanding balance and payable monthly.) To make it easy to look at, consider that you pay total "interest" of 3.75% plus 1.10% (or 1.15%) for the next three years. That puts you at approx. 4.85%, close to 30-year refinance (non-FHA) rates today. I don't see why you'd refinance in July...you are locking in what you don't like.

Keep in mind: you have a guaranteed 3.75% rate waiting for you. I'd suggest saving the $500-$600/month, but not putting it toward principal yet. If you can refinance (non-FHA) to close to 3.75% in the future then take it (a 15-year mortgage or adjustable rate could get you here). Otherwise, sometime after January 2017, make a big principal payment to achieve 78% of the original value, cancel the MIP, and then enjoy your 3.75% for the next 25 years.
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