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Suggestion on Refinancing/Rental


By Liberty   Follow   Tue, 11 Dec 2012, 1:34am PST   1,311 views   15 comments
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Folks – Need your suggestions on Refinancing/Rental.

A year ago took a 30 yr FHA mortgage 400k@3.75%. This month I’m coming out of two mini loans which allow me to add extra payment ($800/monthly). Also I believe to have 40k – 50k equity on my home based on comparable. So I have to do something to get rid of MPI $400/monthly, but I’m really confused to make a decision on the following choices.

1)Refinance to 15 yr mortgage with approx today’s rate 2.5%
2)Refinance to 30 yr mortgage with approx today’s rate 3.1% and make an extra payment towards capital.
3)Leave everything AS IS and buy a rental property(Greed).
4)Or any other choice you recommend.

Financial Background: Technically running check to check. But do have 4 months back up if I go after IRA.

Any suggestion would be appreciated. Thanks!

Comments 1-15 of 15     Last »

Liberty   Tue, 11 Dec 2012, 3:00am PST   Share   Quote   Permalink   Like   Dislike     Comment 1

Thanks SFace!

SFace says

without further information it is hard to tell.

I can provide if I missed any.

it does seem like you want to pay the loan off as fast as possible as you are eager to put that $800 into repayment.

Not very eager, but I don’t know other investment so thought of saving in interest in long term.

You don't have money to buy a rental property.

I had the same feeling, but thought of giving it a shot.

Liberty   Tue, 11 Dec 2012, 3:44am PST   Share   Quote   Permalink   Like   Dislike     Comment 2

Thanks E-man & SFace. I completely agree with your points.

I have kid who will be in collage in 10 yrs. What’s your thought about saving on 529 vs paying off mortgage? Which one will be better? Or Do I have to balance it?

epitaph   Tue, 11 Dec 2012, 4:01am PST   Share   Quote   Permalink   Like   Dislike     Comment 3

Do what E-man said, but I'd put that extra $800/mo in a fund for a year or so before trying to work down that principal, so you have a safety net without having to destroy your IRA.

YesYNot   Tue, 11 Dec 2012, 4:01am PST   Share   Quote   Permalink   Like   Dislike     Comment 4

pay retirement accounts, then mortgage, then kids college.

Liberty   Tue, 11 Dec 2012, 6:30am PST   Share   Quote   Permalink   Like   Dislike     Comment 5

Amazing! What a unified thoughts. Definitely, getting rid of PMI/MPI is my next goal. Thanks for making it clear.

Again, Thank You all for your valuable suggestions.

swebb   Tue, 11 Dec 2012, 9:00am PST   Share   Quote   Permalink   Like   Dislike     Comment 6

I tend to agree with getting rid of the PMI ASAP, but if I recall FHA makes you carry it for 5 years minimum. I'm not sure about that, but I thought it was so.

Edit: I'm not sure what happens if you sell before 5 years, but paying down before 5 years wouldn't remove the PMI.

B.A.C.A.H.   Tue, 11 Dec 2012, 1:25pm PST   Share   Quote   Permalink   Like   Dislike     Comment 7

Liberty says

I believe to have 40k – 50k equity on my home
.....I have to do something to get rid of MPI $400/monthly....running check to check.....have 4 months back up if I go after IRA...other choice you recommend ...getting rid of PMI/MPI is my next goal. ...I have kid who will be in collage in 10 yrs...

"Other choice":

Sell the house, put 6 months living expense into FDIC insured account, the rest into IRAs. If you sell the house and get the cash before April 15th, you can put $5000 into 2012 IRA and $5500 into 2013. Double if you have a spouse with income.

Now then, with six months' living expense set aside, and more in your retirement account, any ADDITIONAL savings you can set aside can go towards a downpayment on a different house for some time in the future.

Liberty   Tue, 11 Dec 2012, 11:05pm PST   Share   Quote   Permalink   Like   Dislike     Comment 8

B.A.C.A.H. says

Sell the house, put 6 months living expense into FDIC insured account, the rest into IRAs.

Different perspective but never occurred to me. May be it’s not a smart thing to do in this context.

B.A.C.A.H. says

Now then, with six months' living expense set aside

That’s a lot of money in Savings Account. Definitely, that’s not my life style. I better invest in something than having it idle.

Liberty   Tue, 11 Dec 2012, 11:11pm PST   Share   Quote   Permalink   Like   Dislike     Comment 9

SFace says

The idea is to carry a 80% ltv ratio and refi to conventional.

I concur.

FortWayne   Wed, 12 Dec 2012, 3:19am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

Do a 30y refi, it's the safest option you have. Others carry too much risk.

Liberty   Wed, 12 Dec 2012, 4:55am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

FortWayne says

Do a 30y refi, it's the safest option you have. Others carry too much risk.

Agree.

I have a question, suppose if I make an extra payment towards capital for a while, then for some reason if I happen to miss one monthly payment. Do they adjust the missed monthly payment with extra capital?

uomo_senza_nome   Wed, 12 Dec 2012, 5:06am PST   Share   Quote   Permalink   Like   Dislike     Comment 12

Liberty says

Do they adjust the missed monthly payment with extra capital?

I don't think so.

One other thing is that you have to clearly specify that the extra payment you make is towards principal repayment, otherwise some lenders can just keep it in escrow. This way, they get more interest.

Liberty   Wed, 12 Dec 2012, 5:20am PST   Share   Quote   Permalink   Like   Dislike     Comment 13

SFace says

no

Thanks. Good to know in advance.

uomo_senza_nome says

you have to clearly specify that the extra payment you make is towards principal repayment.

Thanks, valid point. Cannot afford that mistake.

B.A.C.A.H.   Wed, 12 Dec 2012, 1:06pm PST   Share   Quote   Permalink   Like   Dislike     Comment 14

Liberty says

B.A.C.A.H. says

Sell the house, put 6 months living expense into FDIC insured account...

Liberty says

That’s a lot of money in Savings Account.

yes it is. If you are considering using it for "savings for growth". Absolutely I agree with you on that and don't even do it myself.
That's why I did not use the words "Savings Account". You did. I said 6 months living expense into FDIC insured account. Six months living expense is **NOT** a lot of money to set aside for a rainy day. Living pay check to pay check is one paycheck away from a disaster, or maybe in your case, four months away (does that include the extra taxes that will be paid?) if you blow your (very small) IRA. So many things can happen to make you blow through six months savings even if you DON'T lose your job. Like, car repairs, getting injured by a drunk driver who is also broke (it can happen, it happened to a roommate of mine), etc.

uomo_senza_nome   Wed, 12 Dec 2012, 6:35pm PST   Share   Quote   Permalink   Like   Dislike     Comment 15

swebb says

Edit: I'm not sure what happens if you sell before 5 years, but paying down before 5 years wouldn't remove the PMI.

I think if he refis from FHA to conventional, you can get rid of that mandatory 5 yr monthly MIP.

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