I am a licensed realtor and not a lender so I am writing this to inform my clients and others that they may want to sit down with a trusted lender and discuss whether it makes sense to refinance or not. With that being said, I want people to know and understand that if you financed your house with a FHA loan, you are currently paying mortgage insurance which you may now be able to avoid. Mortgage insurance also known as PMI protects the bank in case you default on the loan. It does nothing to protect you.
As of June 3, 2013, FHA changed their policies on mortgage insurance which required the borrower to pay the mortgage insurance for the life of the loan unless you put 10% or more down on a 30 year mortgage, then it fall off after 11 years. On Conventional loans, mortgage insurance automatically falls off after you have achieved 78% loan to value based on the original sales price. It can be requested to be removed at 80% loan to value if you call the lender and request it.
In recent years our market has seen great appreciation, especially in the first- time home buyer market. First time buyers often use FHA loans, since they offer easier credit guidelines. For many borrowers, they invest the minimum 3-1/2% required down payment down, or they may even have obtained down payment assistance.
So, what do you need to do to stop paying the mortgage insurance?
- Decide if you plan on stay in the home for at least a few more years or if you will hire me to sell it.
- You will need to know if you have enough equity in the property—at least 22% on a refinance. Call me I can help you with this.
- You will need to look at your statement and see how much monthly mortgage insurance you are paying. This amount could easily be $100-$200 a month maybe more depending on your loan amount.
- Verify if there is a repayment or tax consequence for refinancing if you received down payment assistance. Sometimes down payment assistance requires you have the loan for a certain period of time to avoid a partial repayment.
- Look at the interest rate you are paying now and have a lender decipher the difference in interest rate. Remember even if you are currently paying a slightly lower rate now, it still may be worth refinancing to avoid the PMI. This is where you need good counsel , not just someone trying to sell you a refinance that you do NOT need.
- Visit with a reputable lender who can give you good advice. You may be able to lower number of years from 30 to 20 or even 15 with your PMI savings. So, don’t just think, I don’t want to start over on the 30-year note.
Refinancing your home mortgage costs money and with historic low interest rates over the past decade, I have been cautious about the thoughts of my buyers refinancing their home loans. However, it may be time to have a conversation with a reputable lender to see if it makes sense. Even if you don’t have the 22% equity, It may be that you can refinance with a conventional loan with only 10 or 15% equity knowing that in another year or so the PMI may drop off.
If I can be of assistance with your real estate needs or you know someone who is looking to buy, sell or invest in real estate, I would be happy to help them.