Refi After 1 Year?

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kwarden13
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Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 10:55 am

Should I refinance? All options are refinancing $340,000. Details below on my current situation which is what I pay now. In February my taxes are increasing and I have an escrow shortage.

Current Situation: 20 Year Fixed Rate Interest rate: 3.50%
Monthly payment: $2,405 (broken down as $2,041.54 principal and interest + $193 PMI + $119.29 property taxes + $51.17 hazard insurance)

February 2018: 20 Year Fixed Rate Interest rate: 3.50%
Monthly payment: $2,869.39 (broken down as $2,041.54 principal and interest + $193 PMI + $320.43 property taxes + $51.17 hazard insurance+$252.45 shortage in escrow account)
I think the shortage amount will go away once we are caught up though in escrow in Jan 2019. So in Feb 2019 it will be $2616 until PMI is dropped in 2022.

Option #1: 20 Year Fixed Rate Interest rate: 3.750%
Monthly payment: $2,411.14 (broken down as $2,039.54 principal and interest + $320.43 property taxes + $51.17 hazard insurance)
Estimated monthly savings: $458.25 (which is higher because we are also curing your escrow shortage with the refinance)
I am leaning towards this option since I feel this would eliminate the PMI and the interest rate seems good.

Option #2:30 Year Fixed Rate Interest rate: 4.125%
Monthly payment: $2,038.80 (broken down as $1667.20 principal and interest + $320.43 property taxes + $51.17 hazard insurance)
Estimated monthly savings: $830.59 (which is higher because we also are curing your escrow shortage with the refinance)

Both option 1 and option 2 include about $2400 in closing costs and we would get $500 back at closing. So a net $1900 which would be wrapped into the loan.

Thoughts? Also some more details on income, age, etc..

Partner and I are 29 and 32. We are both trying to max out 401k this year (I maxed out last year, she did not). We bring home about $7500 a month after taxes and 401k contributions. The reason for lack of cash flow is we just started making this much 2 years ago. Since, we paid off $70k in student loans in Sept 2017. Unfortunately last year we made a bad investment decision and have $35k of credit card debt at 0% interest for 13 months. So this year, we are paying that off aggressively. Cash flow should not be an issue after however, it is tight this year. I can always balance transfer to another card later on if needed and just pay the shortage this month. However this will still keep our PMI.
Last edited by kwarden13 on Mon Jan 01, 2018 1:30 pm, edited 6 times in total.

BogleBoogie
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Re: Refi After 1 Year?

Post by BogleBoogie » Mon Jan 01, 2018 11:01 am

To get the best, most specific advice for your particular situation more information would be needed (income, investments, cash flow, job security, years left working, etc.). But generally speaking, if you can swing the 20 year mortgage over the 30 year while still accomplishing all your investment goals go with the 20 year.

Not knowing more about your particular situation, I like option 1.

thatme
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Re: Refi After 1 Year?

Post by thatme » Mon Jan 01, 2018 11:06 am

Maybe I'm confused, but it looks like you're considering refi'ing a 3.5% to a 3.75% for the sole purpose of curing an escrow shortfall? Does Option 1 otherwise eliminate PMI much more quickly for some reason?

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:09 am

Right now we have about 4 years until we get rid of PMI. Both option 1 & 2 get rid of PMI now, which is $193 a month. Just edited the post as I realized I left PMI out of the current situation section.

This is a local mortgage broker who is doing lender paid PMI, which is reflected in the 3.75% rate.
Last edited by kwarden13 on Mon Jan 01, 2018 11:11 am, edited 1 time in total.

ny_knicks
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Re: Refi After 1 Year?

Post by ny_knicks » Mon Jan 01, 2018 11:09 am

How is the PMI being eliminated? Did they reappraise the home to get you over the 20% threshold? If so have you tried to get the PMI cancelled on the current loan?

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:12 am

ny_knicks wrote:
Mon Jan 01, 2018 11:09 am
How is the PMI being eliminated? Did they reappraise the home to get you over the 20% threshold? If so have you tried to get the PMI cancelled on the current loan?

This is a local mortgage broker who is doing lender paid PMI, which is reflected in the 3.75% rate. I called and Chase and is very wishy washy on what needs to be done. Either option requires us to be out the appraisal so that is why we were looking to refinance. I don't think we are quite at 20% yet, more like 12-15% LTV.

ny_knicks
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Re: Refi After 1 Year?

Post by ny_knicks » Mon Jan 01, 2018 11:35 am

kwarden13 wrote:
Mon Jan 01, 2018 11:12 am
This is a local mortgage broker who is doing lender paid PMI, which is reflected in the 3.75% rate. I called and Chase and is very wishy washy on what needs to be done. Either option requires us to be out the appraisal so that is why we were looking to refinance. I don't think we are quite at 20% yet, more like 12-15% LTV.
So they aren't actually eliminating your PMI just baking it into the loan via higher interest rates. If you're at 15% LTV it probably isn't worth going w/ lender paid PMI since you're stuck w/ the higher interest rates over the life of the loan when you might be able to just wait and eliminate them on the current loan or refi at a later date when you're over the 20% threshold.

Back of the envelope math and I may be wrong I haven't had my coffee: You're extending the loan for a year in option 1 compared to your current loan. The monthly payments are roughly equivalent once you pull out PMI and Escrow Shortage on your current loan. The 1 year extension is equivalent to making an additional ~$24,500 in principal/interest payments over the life of the loan. This extension "saves" you at a maximum ~$9600 in PMI payments if you go all the way out to 2022 and ~$3,500 in Escrow Shortage. Total savings: -$11,400?

I am going to go out on a limb and say Option 2 looks a lot worse in terms of savings over the life of the loan.

So it looks like you might cash flow a little better now on the loan but you are sacrificing an additional year of P+I payments and taking a higher interest rate.

Unless you're strapped for cash every month and can't afford the current mortgage why not wait a year or so until you hopefully cross the 20% LTV threshold to remove PMI and see if they will remove it on your current loan or refinance then?
Last edited by ny_knicks on Mon Jan 01, 2018 11:37 am, edited 1 time in total.

OldSport
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Re: Refi After 1 Year?

Post by OldSport » Mon Jan 01, 2018 11:36 am

How long have you been in the current loan? I'm guessing the 3.75% 20 year loan is ~$2/month cheaper principal & interest than the 3.5% 20 year loan, since the principal is a little lower with the new loan. Also, you would be starting a new 20 year term, so if you are already 1-2 years in the existing loan, it would take you 1-2 years longer to pay off the loan.

What did Chase say it would take to remove PMI from the existing loan? Escrow shortage is temporary and should not be considered here, as taxes and insurance should be the same.

New loan initiation fees, and PMI and interest over the lifetime of each loan should be compared.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:40 am

ny_knicks wrote:
Mon Jan 01, 2018 11:35 am
kwarden13 wrote:
Mon Jan 01, 2018 11:12 am
This is a local mortgage broker who is doing lender paid PMI, which is reflected in the 3.75% rate. I called and Chase and is very wishy washy on what needs to be done. Either option requires us to be out the appraisal so that is why we were looking to refinance. I don't think we are quite at 20% yet, more like 12-15% LTV.
So they aren't actually eliminating your PMI just baking it into the loan via higher interest rates. If you're at 15% LTV it probably isn't worth going w/ lender paid PMI since you're stuck w/ the higher interest rates over the life of the loan when you might be able to just wait and eliminate them on the current loan or refi at a later date when you're over the 20% threshold.

Back of the envelope math and I may be wrong I haven't had my coffee: You're extending the loan for a year in option 1 compared to your current loan. The monthly payments are roughly equivalent once you pull out PMI and Escrow Shortage on your current loan. The 1 year extension is equivalent to making an additional ~$24,500 in principal/interest payments over the life of the loan. This extension "saves" you at a maximum ~$9600 in PMI payments if you go all the way out to 2022 and ~$3,500 in Escrow Shortage. Total savings: -$11,400?

I am going to go out on a limb and say Option 2 looks a lot worse in terms of savings over the life of the loan.

So it looks like you might cash flow a little better now on the loan but you are sacrificing an additional year of P+I payments and taking a higher interest rate.

Unless you're strapped for cash every month can can't afford the current mortgage why not wait a year or so until you hopefully cross the 20% LTV threshold to remove PMI and see if they will on your current loan or refinance then?
I realize we will pay more overall, but this takes care of the escrow shortage too which is $3k. It's still negative over 20 years, however, we were worried about going from a $2400 payment to a $2869 payment. Basically, a perfect storm of tax increasing and an escrow shortage increased our payment by $500+ a month. We can make it, but it would be tight right now.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:43 am

OldSport wrote:
Mon Jan 01, 2018 11:36 am
How long have you been in the current loan? I'm guessing the 3.75% 20 year loan is ~$2/month cheaper principal & interest than the 3.5% 20 year loan, since the principal is a little lower with the new loan. Also, you would be starting a new 20 year term, so if you are already 1-2 years in the existing loan, it would take you 1-2 years longer to pay off the loan.

What did Chase say it would take to remove PMI from the existing loan? Escrow shortage is temporary and should not be considered here, as taxes and insurance should be the same.

New loan initiation fees, and PMI and interest over the lifetime of each loan should be compared.
We are 1 year into the loan. Basically wanted to drop PMI. Even if the interest rate is slightly higher at least we can deduct interest right?

ny_knicks
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Re: Refi After 1 Year?

Post by ny_knicks » Mon Jan 01, 2018 11:46 am

kwarden13 wrote:
Mon Jan 01, 2018 11:40 am
I realize we will pay more overall, but this takes care of the escrow shortage too which is $3k. It's still negative over 20 years, however, we were worried about going from a $2400 payment to a $2869 payment. Basically, a perfect storm of tax increasing and an escrow shortage increased our payment by $500+ a month. We can make it, but it would be tight right now.
That is why I think some other posters said it might be tough to give advice w/o the whole financial picture...if you're going to be cutting it close it might make sense to refi or maybe use some savings to makeup the escrow shortage?

Doohop65
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Re: Refi After 1 Year?

Post by Doohop65 » Mon Jan 01, 2018 11:48 am

I tend to think it might be best to tighten your belt and find a way to get your ltv in line to drop pmi on your current note.

Be sure to run your tax situation with the new tax law before assuming you will be able to write off the interest. There are many moving parts in the new law that may change your tax outlook going forward.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:48 am

Yes I am thinking about just paying the escrow shortage. This just comes at bad timing as we had some credit card debt at 0% we wanted to pay off. We could pay that later as we have 12 months at 0% interest

Also, I inquired back to the mortgage lender about a 15 year mortgage. If the rate was 3.25% or so the monthly would still be lower and we would at least shave off years.

OldSport
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Re: Refi After 1 Year?

Post by OldSport » Mon Jan 01, 2018 11:51 am

kwarden13 wrote:
Mon Jan 01, 2018 11:43 am
OldSport wrote:
Mon Jan 01, 2018 11:36 am
How long have you been in the current loan? I'm guessing the 3.75% 20 year loan is ~$2/month cheaper principal & interest than the 3.5% 20 year loan, since the principal is a little lower with the new loan. Also, you would be starting a new 20 year term, so if you are already 1-2 years in the existing loan, it would take you 1-2 years longer to pay off the loan.

What did Chase say it would take to remove PMI from the existing loan? Escrow shortage is temporary and should not be considered here, as taxes and insurance should be the same.

New loan initiation fees, and PMI and interest over the lifetime of each loan should be compared.
We are 1 year into the loan. Basically wanted to drop PMI. Even if the interest rate is slightly higher at least we can deduct interest right?

You can deduct interest if your total deductions are higher than the standard deduction. 2018 almost doubles the standard deduction and limits total SALT deductions to $10k.

OldSport
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Re: Refi After 1 Year?

Post by OldSport » Mon Jan 01, 2018 11:55 am

kwarden13 wrote:
Mon Jan 01, 2018 11:48 am
Yes I am thinking about just paying the escrow shortage. This just comes at bad timing as we had some credit card debt at 0% we wanted to pay off. We could pay that later as we have 12 months at 0% interest

Also, I inquired back to the mortgage lender about a 15 year mortgage. If the rate was 3.25% or so the monthly would still be lower and we would at least shave off years.
Escrow shortage should not be factored as it is temporary. Escrow is just pooling your money used to pay property taxes and insurance, which should be the same regardless of the loan. Anything left in escrow when the loan is paid in full is yours, but you are responsible for paying insurance and taxes directly.

Krischi
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Re: Refi After 1 Year?

Post by Krischi » Mon Jan 01, 2018 12:42 pm

So, if I understand your situation correctly, you're "curing" the escrow shortage by paying $1900 net and tacking an additional year or two onto the loan. To me that is not sound financial practice, if you'll forgive me for being so direct.

Without knowing more about your job situation and full income and cash flow picture, my take is that you are overextended and need to take more drastic steps than simply temporarily getting out of an extra $400/month payment. It looks like you don't have enough cash flow to make the payments comfortably, which makes me wonder what you will do when, inevitably, property taxes and insurance go up again and you are faced with a new escrow shortage. Also, how will you pay for ongoing home maintenance if these additional $400 already pose you problems?

If you have a cash flow problem, I'd go with the 30-year mortgage. You can always accelerate payments if your cash flow improves.

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Re: Refi After 1 Year?

Post by Lafder » Mon Jan 01, 2018 1:08 pm

No I would not refi to a higher interest loan.

Are you sure the escrow shortage is one year only, or will the new amount continue ? It often changes if property tax or insurance go up, which is ongoing. Tax increasing is what is causing the escrow shortage as far as I can tell from your post.

What do you mean payment increasing by 500$/month? That is 6000$ a year which is much more than the escrow shortage you mentioned.

lafder

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 1:15 pm

Krischi wrote:
Mon Jan 01, 2018 12:42 pm
So, if I understand your situation correctly, you're "curing" the escrow shortage by paying $1900 net and tacking an additional year or two onto the loan. To me that is not sound financial practice, if you'll forgive me for being so direct.

Without knowing more about your job situation and full income and cash flow picture, my take is that you are overextended and need to take more drastic steps than simply temporarily getting out of an extra $400/month payment. It looks like you don't have enough cash flow to make the payments comfortably, which makes me wonder what you will do when, inevitably, property taxes and insurance go up again and you are faced with a new escrow shortage. Also, how will you pay for ongoing home maintenance if these additional $400 already pose you problems?

If you have a cash flow problem, I'd go with the 30-year mortgage. You can always accelerate payments if your cash flow improves.
It almost an extra $500 a month and $193 goes to PMI. So its not just getting out of the escrow shortage. I am trying to get rid of PMI. Even without the escrow shortage, I pay $193 into PMI which is pointless so yes, I am trying to get rid of it and the above were my options. I won't get into your comments about me paying my bills, etc. because that was not question.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 1:16 pm

Lafder wrote:
Mon Jan 01, 2018 1:08 pm
No I would not refi to a higher interest loan.

Are you sure the escrow shortage is one year only, or will the new amount continue ? It often changes if property tax or insurance go up, which is ongoing. Tax increasing is what is causing the escrow shortage as far as I can tell from your post.

What do you mean payment increasing by 500$/month? That is 6000$ a year which is much more than the escrow shortage you mentioned.

lafder
My taxes went up and I also have an escrow shortage. I broke up my payments in my current situation below. I guess it is confusing because my current payment is actually $2405 but taxes are increasing in February 2018. So that is not fixable as it is just part of it so I just assumed it in my current situation.

I updated the original post with more details since it was not clear.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 1:28 pm

BogleBoogie wrote:
Mon Jan 01, 2018 11:01 am
To get the best, most specific advice for your particular situation more information would be needed (income, investments, cash flow, job security, years left working, etc.). But generally speaking, if you can swing the 20 year mortgage over the 30 year while still accomplishing all your investment goals go with the 20 year.

Not knowing more about your particular situation, I like option 1.
Added more details to original post.

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whodidntante
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Re: Refi After 1 Year?

Post by whodidntante » Mon Jan 01, 2018 1:53 pm

$200/mo in PMI is a problem, but is not a gigantic problem. Lender paid PMI will not help you in the long-term. It seems like right now you are overextended; at least I would feel that way in your situation. You need money and it will take some time to accumulate it, but you can since you have a good income. It would help if you could make additional money, though that may not be realistic.

I would take a breath and try to get to a spot where I could refi to a 15 year with no more than 80% LTV. If I couldn't realistically get there and also invest sufficiently for retirement, I would consider selling the house. I wouldn't get much enjoyment out of a house that I think is holding me back. You might disagree and that's fine.

CppCoder
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Re: Refi After 1 Year?

Post by CppCoder » Mon Jan 01, 2018 3:11 pm

Per your own words, you have a temporary cash flow problem. I wouldn't "fix" it with a long term solution by extending your loan and going to a higher interest rate. I would do one of two things:
  • Decrease the rate of paying off the credit card. It's 0% interest, so you can defer that (although the rate may be usurious after your initial year if you can't roll that debt to something better or pay it off outright).
  • Decrease your 401k contributions for one year. I'm (really roughly) estimating you gross $150k-ish (maybe +/- $10k). At your age, you can probably live without putting 25% of your gross into your 401k. Two problems with that, though. First, it will increase your taxable income. Second, it sets a bad precedent, and you may continue this in the future. Can you really limit a 401k reduction for one year to clear up a temporary cash flow issue? Only you know yourself well enough to answer that question.
Honestly, though, the one thing you're not addressing (maybe you don't want to), which, in my opinion, is the biggest thing you should address, is that you cannot make a $2900 payment per month when you are netting $7500. Where is the other $4600 per month going? Do you have no slack to trim 8-9% of your other monthly expenditures? As others have said, with current spending habits, you are overextended.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:16 pm

Any thoughts if I refinanced to a 15 year? The rate would 3.25%, I would drop PMI, and the monthly would still be less than the current situation. It would be around $2775 and shave off 4 years on the mortgage.

Would that be better than freeing up cash flow on the 20 year? Also, when I calculated the difference in options, the 20 year was pretty much a wash with the interest and such over time. The difference is that I don't pay PMI for the next 4 years which basically pays for the refinance and additional interest.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:20 pm

CppCoder wrote:
Mon Jan 01, 2018 3:11 pm
Per your own words, you have a temporary cash flow problem. I wouldn't "fix" it with a long term solution by extending your loan and going to a higher interest rate. I would do one of two things:
  • Decrease the rate of paying off the credit card. It's 0% interest, so you can defer that (although the rate may be usurious after your initial year if you can't roll that debt to something better or pay it off outright).
  • Decrease your 401k contributions for one year. I'm (really roughly) estimating you gross $150k-ish (maybe +/- $10k). At your age, you can probably live without putting 25% of your gross into your 401k. Two problems with that, though. First, it will increase your taxable income. Second, it sets a bad precedent, and you may continue this in the future. Can you really limit a 401k reduction for one year to clear up a temporary cash flow issue? Only you know yourself well enough to answer that question.
Honestly, though, the one thing you're not addressing (maybe you don't want to), which, in my opinion, is the biggest thing you should address, is that you cannot make a $2900 payment per month when you are netting $7500. Where is the other $4600 per month going? Do you have no slack to trim 8-9% of your other monthly expenditures? As others have said, with current spending habits, you are overextended.
We have been aggressively paying off student loans and now are paying off credit card debt - around $2000-2500 a month. We have only been making this much combined for 12 months. So we have not had time to bank money yet as we have been focused on paying off debt. This was the first year I maxed out my 401k which is at $82k total.

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grabiner
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Re: Refi After 1 Year?

Post by grabiner » Mon Jan 01, 2018 11:23 pm

The escrow is a cash flow issue, but not a cost. If you have an escrow shortage, the only way to get rid of it is to put more money into escrow; regardless of what your bank calls it, that is a cash-in (or less-cash-out) refinance. Thus it makes more sense to compare mortgages based on term, interest rate, and payments which differ between mortgage such as PMI.

If you have cash flow problems, then refinancing to the longer term is desirable, not because it will save you money directly, but because it helps with the cash flow. Since your cash flow is being used to pay off credit cards, that is a good deal, but you need to commit yourself to making good use of the cash flow; once the credit cards are paid off, the money which was going to the credit cards should go to your 401(k) and IRAs.
Wiki David Grabiner

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 01, 2018 11:34 pm

grabiner wrote:
Mon Jan 01, 2018 11:23 pm
The escrow is a cash flow issue, but not a cost. If you have an escrow shortage, the only way to get rid of it is to put more money into escrow; regardless of what your bank calls it, that is a cash-in (or less-cash-out) refinance. Thus it makes more sense to compare mortgages based on term, interest rate, and payments which differ between mortgage such as PMI.

If you have cash flow problems, then refinancing to the longer term is desirable, not because it will save you money directly, but because it helps with the cash flow. Since your cash flow is being used to pay off credit cards, that is a good deal, but you need to commit yourself to making good use of the cash flow; once the credit cards are paid off, the money which was going to the credit cards should go to your 401(k) and IRAs.
That is the plan - to invest heavily in other investments after this is cleared up along with the credit card debt this year. So what option do you recommend? When I worked the numbers on the 20 year, I will pay about $5-6k more interest over the mortgage loan by refinancing, but save about $8-9k in PMI payments. The refinance will add 1 year to our current term and cost $485 out of pocket.

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Re: Refi After 1 Year?

Post by CppCoder » Tue Jan 02, 2018 10:17 am

kwarden13 wrote:
Mon Jan 01, 2018 11:34 pm
That is the plan - to invest heavily in other investments after this is cleared up along with the credit card debt this year. So what option do you recommend? When I worked the numbers on the 20 year, I will pay about $5-6k more interest over the mortgage loan by refinancing, but save about $8-9k in PMI payments. The refinance will add 1 year to our current term and cost $485 out of pocket.
Does saving the $8k-$9k in PMI payments assume that you would be able to remove PMI on your existing mortgage when LTV hits 20% or is that assuming PMI exists for the duration of the loan? Another alternative would be to first cover the escrow balance and then find enough cash to make enough principal payments to discharge PMI on the existing loan. This is just me personally, but I'd rather find more cash now (e.g., decrease 401k contributions, drive for Uber) than roll my debt into a higher interest loan for a longer term. I understand David's post above viewing it as a cash flow issue. However, as you've said, it's a short term cash flow issue not a long term one. Find a short term solution that lasts until you can free up cash flow rather than a long term one you'll be stuck with once your cash flow increases.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Tue Jan 02, 2018 10:23 am

CppCoder wrote:
Tue Jan 02, 2018 10:17 am
kwarden13 wrote:
Mon Jan 01, 2018 11:34 pm
That is the plan - to invest heavily in other investments after this is cleared up along with the credit card debt this year. So what option do you recommend? When I worked the numbers on the 20 year, I will pay about $5-6k more interest over the mortgage loan by refinancing, but save about $8-9k in PMI payments. The refinance will add 1 year to our current term and cost $485 out of pocket.
Does saving the $8k-$9k in PMI payments assume that you would be able to remove PMI on your existing mortgage when LTV hits 20% or is that assuming PMI exists for the duration of the loan? Another alternative would be to first cover the escrow balance and then find enough cash to make enough principal payments to discharge PMI on the existing loan. This is just me personally, but I'd rather find more cash now (e.g., decrease 401k contributions, drive for Uber) than roll my debt into a higher interest loan for a longer term. I understand David's post above viewing it as a cash flow issue. However, as you've said, it's a short term cash flow issue not a long term one. Find a short term solution that lasts until you can free up cash flow rather than a long term one you'll be stuck with once your cash flow increases.
Yes I can remove PMI once LTV hits 20%. Between now and when I hit 20%, I will spend about $8-9k in PMI payments. I am leaning towards refinancing to the 15 year mortgage because I save a small amount now, it clears up the short term cash flow issue, and saves us interest and years. Or not doing the refinance at all.

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Re: Refi After 1 Year?

Post by CppCoder » Tue Jan 02, 2018 10:46 am

kwarden13 wrote:
Tue Jan 02, 2018 10:23 am
Yes I can remove PMI once LTV hits 20%. Between now and when I hit 20%, I will spend about $8-9k in PMI payments. I am leaning towards refinancing to the 15 year mortgage because I save a small amount now, it clears up the short term cash flow issue, and saves us interest and years. Or not doing the refinance at all.
I missed your post on the 15 year option. Yes, if you can lower your rate, save money overall, shorten the duration of your loan, and meet your cash flow needs, this would be the best option. Usually, shorter loans, even with lower interest rates, carry higher monthly payments. I'm surprised you can get a 15 year loan with a lower monthly payment than a 20 year loan.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Tue Jan 02, 2018 11:06 am

CppCoder wrote:
Tue Jan 02, 2018 10:46 am
kwarden13 wrote:
Tue Jan 02, 2018 10:23 am
Yes I can remove PMI once LTV hits 20%. Between now and when I hit 20%, I will spend about $8-9k in PMI payments. I am leaning towards refinancing to the 15 year mortgage because I save a small amount now, it clears up the short term cash flow issue, and saves us interest and years. Or not doing the refinance at all.
I missed your post on the 15 year option. Yes, if you can lower your rate, save money overall, shorten the duration of your loan, and meet your cash flow needs, this would be the best option. Usually, shorter loans, even with lower interest rates, carry higher monthly payments. I'm surprised you can get a 15 year loan with a lower monthly payment than a 20 year loan.
It is only lower by $100 a month in year 1, then roughly $150 more expensive a month in years 2-4, then $300 more a month for the duration. But it does at least save $100 in the short term a month.

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Re: Refi After 1 Year?

Post by kwarden13 » Thu Jan 04, 2018 10:09 am

Just updating that I am going ahead with an appraisal. Worst case I am out $450, but really can't do much without it. Who knows maybe my house will appraise for an 80% LTV. Anyone have tips on getting a higher appraisal? I am going to send the appraiser comps and also clean/scrub my house this weekend.

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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 22, 2018 6:02 pm

CppCoder wrote:
Tue Jan 02, 2018 10:46 am

I missed your post on the 15 year option. Yes, if you can lower your rate, save money overall, shorten the duration of your loan, and meet your cash flow needs, this would be the best option. Usually, shorter loans, even with lower interest rates, carry higher monthly payments. I'm surprised you can get a 15 year loan with a lower monthly payment than a 20 year loan.
Ok so I finally received my appraisal back and can refinance to drop PMI. I currently have an escrow shortage of $3,000 due to an increase in property taxes. Should I refinance?

Current Situation: 20 Year Fixed Rate (19 to go) Interest rate: 3.50%
Monthly payment: $2,869.39 (broken down as $2,041.54 principal and interest + $330.65 property taxes + $51.14 hazard insurance + $193.61 PMI + $252.45 shortage in escrow account)
I think the shortage amount will go away once we are caught up though in escrow. So really it's $2616.

Option : 20 Year Fixed Rate Interest rate: 3.750%
Monthly payment: $2,422.59 (broken down as $2041.02 principal and interest + $330.43 property taxes + $51.14 hazard insurance)
This includes some of the shortage being rolled into the loan and $1600 out of pocket. They can close on this within 1 week.
Last edited by kwarden13 on Mon Jan 22, 2018 9:27 pm, edited 1 time in total.

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Re: Refi After 1 Year?

Post by CppCoder » Mon Jan 22, 2018 8:54 pm

kwarden13 wrote:
Mon Jan 22, 2018 6:02 pm
CppCoder wrote:
Tue Jan 02, 2018 10:46 am

I missed your post on the 15 year option. Yes, if you can lower your rate, save money overall, shorten the duration of your loan, and meet your cash flow needs, this would be the best option. Usually, shorter loans, even with lower interest rates, carry higher monthly payments. I'm surprised you can get a 15 year loan with a lower monthly payment than a 20 year loan.
Ok so I finally received my appraisal back and can refinance to drop PMI. I currently have an escrow shortage of $3,000 due to an increase in property taxes. Should I refinance?

Current Situation: 20 Year Fixed Rate (19 to go) Interest rate: 3.50%
Monthly payment: $2,869.39 (broken down as $2,041.54 principal and interest + $320.43 property taxes + $51.17 hazard insurance+$252.45 shortage in escrow account)
I think the shortage amount will go away once we are caught up though in escrow. So really it's $2616.

Option : 20 Year Fixed Rate Interest rate: 3.750%
Monthly payment: $2,411.14 (broken down as $2,039.54 principal and interest + $320.43 property taxes + $51.17 hazard insurance)

This includes some of the shortage being rolled into the loan and $1600 out of pocket. They can close on this within 1 week.
The numbers in your first option don't add up, so I can't figure out how to compare your two options. In the first option, you list a payment of $2,869.39 broken up into numbers that sum to $2665.59. Is $2665.59 the correct monthly amount or is one of the numbers in your breakdown incorrect?

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Re: Refi After 1 Year?

Post by kwarden13 » Mon Jan 22, 2018 9:28 pm

CppCoder wrote:
Mon Jan 22, 2018 8:54 pm

The numbers in your first option don't add up, so I can't figure out how to compare your two options. In the first option, you list a payment of $2,869.39 broken up into numbers that sum to $2665.59. Is $2665.59 the correct monthly amount or is one of the numbers in your breakdown incorrect?
Sorry I forgot to add the PMI to the current situation. I updated the numbers now.

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Re: Refi After 1 Year?

Post by dziuniek » Tue Jan 23, 2018 11:30 am

I wouldn't do it.

Seems like a hassle.

$450 out already for appraisal.
$1600 to the table.

I would either:

1. Pay shortfall.
2. Pay less on CC debt - you did say it's 0% interest....

3. Temporarily lower 401k contributions until CC debt is gone.

It seems to me you can address the cashflow issue in other areas than the mortgage REFI - which is expensive and increases your long-term costs...

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Re: Refi After 1 Year?

Post by CppCoder » Tue Jan 23, 2018 8:20 pm

kwarden13 wrote:
Mon Jan 22, 2018 9:28 pm
Sorry I forgot to add the PMI to the current situation. I updated the numbers now.
In your current situation, at what point would PMI be discharged? Basically, without PMI, they're both the same monthly cost (you'll either pay the escrow shortage now or roll it into the new loan and pay it eventually plus interest). Essentially, the difference is the $24k or so you'll pay over the life of the loan for extending the term a year. The PMI would have to last another 8 years to equal the difference in these two loans. In the long haul, you're probably better in your current situation. However, if you absolutely have a liquidity crunch and see no other route but the refinance, it's not terrible.

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Re: Refi After 1 Year?

Post by fortfun » Tue Jan 23, 2018 9:45 pm

If you do decide to refi, not sure that's the best option for you, please check some online lenders like Provident Funding, Ally, etc. They generally beat the local brick and mortar lenders (by a lot). If you have good credit, you may be able to get no closing costs, with a rate that similar to your current rate, and drop the PMI. I'd only refi if you can get the same or lower rate (on a 15yr), no closing costs, and drop the pmi.

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Tue Jan 23, 2018 9:50 pm

CppCoder wrote:
Tue Jan 23, 2018 8:20 pm
In your current situation, at what point would PMI be discharged? Basically, without PMI, they're both the same monthly cost (you'll either pay the escrow shortage now or roll it into the new loan and pay it eventually plus interest). Essentially, the difference is the $24k or so you'll pay over the life of the loan for extending the term a year. The PMI would have to last another 8 years to equal the difference in these two loans. In the long haul, you're probably better in your current situation. However, if you absolutely have a liquidity crunch and see no other route but the refinance, it's not terrible.
Not sure I did this right...however, it looks like over 20 years it is worse to refinance, however, if the property is kept less then 10 years it is more favorable to refinance. We will probably only stay in the house 5-7 years. I am leaning towards refinancing since it would help us in the short term.

We have 4 more years of PMI so this gets rid of that.

Image

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Re: Refi After 1 Year?

Post by grabiner » Wed Jan 24, 2018 12:17 am

kwarden13 wrote:
Tue Jan 23, 2018 9:50 pm
Not sure I did this right...however, it looks like over 20 years it is worse to refinance, however, if the property is kept less then 10 years it is more favorable to refinance. We will probably only stay in the house 5-7 years. I am leaning towards refinancing since it would help us in the short term.

We have 4 more years of PMI so this gets rid of that.

Image
This is not the correct comparison, because dollars paid later are less costly than dollars paid now. If you reduce this year's payment, you can contribute the difference in payments to your IRA or 401(k), where it will grow.

To get a more fair comparison, see what happens if you make additional payments so that both loans are paid off on the same date; which loan requires higher payments? Another way to look at this is to make the same payment on both loans; which one is paid off first? (This is a common comparison when you refinance a loan to the same term; if you refinance a 30-year mortgage after four years, the payments will go down, but you may pay more total dollars unless you pay extra so that the loan goes away in 26 years.)
Wiki David Grabiner

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Wed Jan 24, 2018 10:36 am

grabiner wrote:
Wed Jan 24, 2018 12:17 am
This is not the correct comparison, because dollars paid later are less costly than dollars paid now. If you reduce this year's payment, you can contribute the difference in payments to your IRA or 401(k), where it will grow.

To get a more fair comparison, see what happens if you make additional payments so that both loans are paid off on the same date; which loan requires higher payments? Another way to look at this is to make the same payment on both loans; which one is paid off first? (This is a common comparison when you refinance a loan to the same term; if you refinance a 30-year mortgage after four years, the payments will go down, but you may pay more total dollars unless you pay extra so that the loan goes away in 26 years.)
Thank you for the response! I see your point. I went back and did some research/calculations using mortgage professor.

https://www.mtgprofessor.com/calculator ... tor3a.html

If I stay in the house 8 years or less it saves money to refinance, however, staying the full 20 years it does not. I am going refinance since it helps me out in the short term and we do not plan to stay here past 8 years. Probably stay about 5-6 years.

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Re: Refi After 1 Year?

Post by grabiner » Thu Jan 25, 2018 12:48 am

kwarden13 wrote:
Wed Jan 24, 2018 10:36 am
grabiner wrote:
Wed Jan 24, 2018 12:17 am
This is not the correct comparison, because dollars paid later are less costly than dollars paid now. If you reduce this year's payment, you can contribute the difference in payments to your IRA or 401(k), where it will grow.

To get a more fair comparison, see what happens if you make additional payments so that both loans are paid off on the same date; which loan requires higher payments? Another way to look at this is to make the same payment on both loans; which one is paid off first? (This is a common comparison when you refinance a loan to the same term; if you refinance a 30-year mortgage after four years, the payments will go down, but you may pay more total dollars unless you pay extra so that the loan goes away in 26 years.)
Thank you for the response! I see your point. I went back and did some research/calculations using mortgage professor.

https://www.mtgprofessor.com/calculator ... tor3a.html
This calculator does the right thing for time value, as it assumes that any payment not made earns interest. (However, rather than savings rates, it makes more sense to use bond rates; if you pay $1000 now to avoid paying $1500 in ten years, you have effectively bought a ten-year bond.)
Wiki David Grabiner

kwarden13
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Re: Refi After 1 Year?

Post by kwarden13 » Wed Jan 31, 2018 9:13 am

Thanks everyone for your help! We signed the mortgage refinance yesterday and it was quick painless process.

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Re: Refi After 1 Year?

Post by JGoneRiding » Wed Jan 31, 2018 10:21 am

Well I am yo late then. I was going to say you have the option of paying the escrow shortage as a lump sum. What I would have done.

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