My home has a $167k loan on it My current payment with taxes, insurance, and PMI is $1425. rate @ 6.75%
Goal is to remove PMI (been 6 years)
1st option: 6.125% 30yr fixed $1260; $1425-1260= $165 savings per mo.
$5K in closing costs $5000/$165=30 months to cover the closing costs
2nd option:
6.25% 30yr fixed; first 10 yrs is an int only loan.
$1110 for the first 10 yrs
3rd option: 5yr ARM 5.75%, int only for 5 yrs. Payment to be $1039; I would refi in 5 yrs in this case
Savings in 5 yrs between 2nd and 3rd options: ($1110-$1039) x 5 yrs = $4260
I plan to own the home for the next 10 yrs and plan to start renting it out at the end of the year. The broker made a good point about the int only loan in my case: The home is worth $295-310k – said there is enough equity that I don’t need to chip in on lowering the loan amount for safety in case the housing market dropped. Does paying on the principal for 2K to 3K per year seem that necessary in comparison with equity?
If you live in Washington state, go to Bank of America. They’re doing a new loan program with no PMI regardless of equity, 0 closing costs (they even pitch in on escrow company cost) and you can call up once a year and get your rate lowered if the interest rates are better than yours. They are ‘testing it out’ in washington only.
Aside from that, rates could really go up, and the ARm option could really suck. If it were me I’d go with the first or second option, depending on what yoru paymetns would be after 10 years.
Also realize that if you’ve had the home 6 years and are refyijng with a 30 year loan then you are adding 6 years to the life. All you really have to do if your house is wroth so much more than before is pay $400 for an appraisal and give it to your current lender and have them remove the PMI– no closing costs at all, and no extra time added to the life of the loan.
I am not sure what you mean by PMI but that’s beside the point. Now this is a touchy situation. In my case I didn’t go with an interest only loan because I don’t have enough equity in my home. If you currently have 165K loan and your house is worth 300k that’s 135k equity and you can afford to not have to pay principal but if your looking to borrow on your equity I would advise against an interest only loan. I don’t know where you live so it’s hard to say how much the market value will go up (or down) in 10 years and it’s not a good idea to chance taking a loss when your ready to sell.
Looking at your three options, I would go with the first. You have the flexibility to play down the principal, and the market might turn in 10 years, so you might be forced to rent it longer, or sell it to a lowballer.
The most important part in real estate leverage is the part of your loan left that equates to the principal in your house. This can affect even your non-real estate loans that you seek to obtain later on.
Lastly, interest only loans are highly profitable for banks, and there is a stong possibility that your broker gets a “kick back” for selling you that bank’s loan. Check out the calculators at the link below. You will probably come up with the same conclusion.
Bottom line: Don’t even refinance. It is not worth the cost. Pay off your principal earlier.
I am not sure that I understand your questions but if your goal is to remove PMI then call your lender and tell them to take it off. If your home value is as you say $295,000 and your loan is $167,000 then your LTV is 56% PMI should be taken off after 80% LTV and sometimes they will at 87%. Because the bank will get there 56% back if the house is foreclosed on they no longer need PMI. I would not do an Interest only or an ARM. You are not looking at the risk that goes with both loans. Don’t do an ARM because we are at 40 year lowe with interest rates and all ARM’s do is protect the Bank not you. Interest only is a stay in debt forever loan and when you do sell you still have to pay the full balance of the loan off. If you really want to make the best move refin to a 15 year fixed rate. Today’s rate on a 15 year is 5.62% My calculation of $167k for 15year at 5.62% payment would be $1,369.44 plus taxes and insurance. I don’t know what you are wanting to get in rent but when you do rent it add that to the $1,369.44 payment and I bet your will pay off this house in like 5-8 years. Then when you sell in 10 years you will get $295k-310k cash at closing. The real question is do you want a little cash now (savings with the interest only loan and or arm) or a lot of cash later?
Your Question is really not clear you see PMI is Principal Mortgage Plus Interestyou can’t remove both.