Suggestion on Refinancing/Rental


By Liberty   Follow   Tue, 11 Dec 2012, 9:34am   1,135 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!

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  1. Liberty


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    1   11:00am Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  2. Liberty


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    2   11:44am Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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?

  3. epitaph


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    3   12:01pm Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  4. YesYNot


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    4   12:01pm Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    pay retirement accounts, then mortgage, then kids college.

  5. Liberty


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    5   2:30pm Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  6. swebb


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    6   5:00pm Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  7. B.A.C.A.H.


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    7   9:25pm Tue 11 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  8. Liberty


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    8   7:05am Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  9. Liberty


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    9   7:11am Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    SFace says

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

    I concur.

  10. FortWayne


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    10   11:19am Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

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

  11. Liberty


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    11   12:55pm Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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?

  12. uomo_senza_nome


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    12   1:06pm Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  13. Liberty


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    13   1:20pm Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  14. B.A.C.A.H.


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    14   9:06pm Wed 12 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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.

  15. uomo_senza_nome


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    15   2:35am Thu 13 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    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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