Financing in Phoenix>Question Details

Mj, Home Owner in Phoenix, AZ

Refinancing to get rid of PMI (and get a lower rate)?

Asked by Mj, Phoenix, AZ Thu Dec 22, 2011

In Oct 2009 I bought a house for $126,500 with a 5% rate on my FHA mortgage. I had less than 20% to put down so I had to pay the MIP up front and I now pay $50 a month for PMI. I've been paying extra towards the principle and I think that in the early part of 2012 I can get my principle balance down to around $100K.

I know that PMI can't be canceled in less than five years even if I'm under 78%. Would it be possible to refinance to remove PMI and get a better rate, or am I better off sticking with what I have? If I could refinance it would eliminate the $50 a month and decrease the amount of interest I pay. However, would I be able to get a good enough deal refinancing to make whatever fees I have to pay worth it?

Also, when refinancing how does the 20% down get calculated? Is it based off of my home's current appraised value? If so, I'm guessing it might have gone down since I bought it and that'll make it harder for me to get to the 20% mark.

Any advice is appreciated, thanks!

Help the community by answering this question:


MJ, Playing the Devil's Advocate, I dont know that refinancing your current mortgage makes any sense at all. Here are the reasons why:

1). 1% drop on interest rate on a 100K loan is a drop in the bucket
2). The way you are prepaying your mortgage, in continued, is going to pay it off much faster than the 30 year term. I suggest you googe an amortization calculator and play with the numbers to see when you will be mortgage free....the savings in interest in rapid pay down is much more compelling that a reduction of 1% in rate.
3). Your $50 in mortgage insurance is really, really lower than it will be if you refinance and do not have the 20%. Mortgage insurance for FHA has gone from .55% to 1.15% since you bought...and my understanding is that the new payroll tax extension is raising it even further. Unfortunately, FHA does not grandfather in the original MI factor, your's would go up dramatically.
4). I seem to remember that MI is still tax deductible (though that may be changing). if it is, what is the point of being concerned about $50? Net taxes? Nominal.
5). You will have all the costs of the refinance, unless you increase the interest rate to cover the costs (now you are down to a 1/2 point in rate savings).

The total amount of your loan and the fact that you are already prepaying it...and a mere 1% drop in rate are all reasons I am pretty confident I could show you the nominal benefit of refinancing. Talk with a mortgage professional, but weight out the numbers after a refinance (the increase in loan balance or the depletion of your savings, for loan costs; the potential increase in mortgage insurance; increasing the amortization back to 30 years...more interest over time) against the figures you will find working with a amortization schedule for early payoff.

Now, if you would consider, and qualify, for a 15 year fixed I would probably encourage you to go full steam ahead. Just trading an apple for an apple really makes more sense. In fact, every consumer looking to jump on the refinance band wagon should be evaluating everything in this comment. IMHO.
2 votes Thank Flag Link Fri Dec 23, 2011
I usually don't make short posts like this but Deborah said what I was about to so no need to say it again. I agree 100% with her assessment and response.

In this situation, I think your best bet is to wait out the PMI or go with a shorter tem like a fifteen year.

Even if the actual math shows a small benefit (for a new 30 year term), there is still the upfront cost and the new PMI charge to contend with that will nearly if not completely negate your savings (assuming you go FHA again).

Dee Dee: According to my accountant, as of last tax year, PMI was still tax deductible but only over the course of the loan on a refinance as opposed to all at once on a purchase transaciton. (speaking in terms of the UFMIP only, same with points paid)
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1 vote Thank Flag Link Sat Dec 24, 2011
Hi, MJ.

Great question!

Did your current servicer tell you that you have to wait five years? This is not an FHA rule but some Lenders will require longer periods than others--my investors seem to generally require 1 - 2 years.

In order to Refinance to get rid of MIP, YES it will be based on the new Appraised Value. So if your value has declined, you are absolutely correct that it will require you to get to 80% of the lower amount.

But with rates <4% and some pretty nifty conventional options you still may be able to do some good for yourself. If you refinance into a conventional, there are some creative ways to quickly eliminate PMI that you may not even be considering yet.

You can reach me at 602-620-1199 if you like. Merry Christmas.
1 vote Thank Flag Link Fri Dec 23, 2011

FHA loans allow the monthly MI to remain on the loan for a minimum of 5 years and 78% loan to value. And, for the record, there are significant changes coming in April, 2013 that will require the MI to remain on an FHA loan for the life of the loan. In other words, going forward the only way out of the MI on an FHA loan will be to refinance it. That fact, combined with the monthly factor going to 1.35%, really establishes the fact that FHA financing will become a "band aid" loan and savvy borrowers will be refinacing into conventional financing as quickly as possible.

Based upon your comments I would encourage you to refinance out of your FHA loan. Unfortunately, rates have gone up a bit and you probably won't save much on the interest rate if you stick with a 30 year...but I would weigh out your options for different loan terms. I would be happy to connect you to a mortgage professional licensed in Arizona.

NMLS #279125
(951) 795-4547
0 votes Thank Flag Link Fri Feb 22, 2013
I have read all the post and while my situation is a bit different these responses helped, but led to a few questions I have...

I bought a 150K foreclosed house (2011) and owe 139K and valued now at 183K. I have a FHA 30 year fixed with a 780 credit score at 3.875% and my current PMI is $135 per month. With the increase in value, clearly I am lower than 80%. I called the bank to take off the PMI and they said because it was less than 5 years AND I am not 20% from the original loan amount (they said the mortgage would have to be at 118K) then they can't take off the PMI. Additionally I have paid in advance on my mortgage 6 months and at times double payments.

Question: Do I refinance under conventional for 30year or 15 year or do I stay in the current mortgage where I am at. I really hate paying $135 per month on PMI let alone interest. I can afford an increase in mortgage even if I go 15year. Even though my loan is 30 year, my plan is to pay it off in 10 years or less.

Any and all comments will help and I am looking for someone to assist that is experienced. Thanks so much :)
0 votes Thank Flag Link Thu Feb 21, 2013
There are loan programs that do not require PMI with less than 20% equity. Here in the San Francisco Bay Area we offer a program up to a $625,500 loan amount that does not require PMI with 5% equity. I wrote a blog post about this program - click on the link below. Consult with a local lender to see if they offer this or a similar program.
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0 votes Thank Flag Link Thu Sep 6, 2012
Deborah is on the money. FHA MI changes over the last few years have typically destroyed what used to be a great program.........the FHA Streamline Refinance program. Since monthly MI premiums doubled since you bought your home it will be difficult to prove you have a net tangible benefit in order to refinance.

However, I've had some success converting borrowers from their 30 yr. fixed loan to a 15 yr. term. The monthly MI can be as low as .25% for borrowers at 90%LTV. The Streamline program allows you to use the original appraisal and the 15 yr term allows you to generate equity much faster.

You might see an increase in your monthly payment but it's primarily principle which equals equity.
0 votes Thank Flag Link Mon Dec 26, 2011
Typically the rule of thumb for the benefit outweighing the costs are based on two key items. If you can refinance and reduce your rate by 1% AND if you intend to stay in your home at least as long as it will take to recoup the loan costs of a refinance. You can Google 'mortgage amortization calculator' to see how this will play out.

To determine this you should speak with a good lender to know what your loan costs to refinance will be. You might also try a streamline refi with your current mortgage company. They may do this at a more nominal cost. Also you can at that time check on what your interest rate would be, they have been bouncing back and forth from 3.875 to 4.25%. If it were me, I would have try having everything in place and then pull the trigger when rates hit 4% again.

As for whether you can 'ditch' your MIP by refinancing, again I would encourage you to speak to a good lender. Mortgage rules have been in a continuous state of change since the credit crisis began in late 2007.

Good luck, and if you need assistance or a lender referral, you can reach me on Facebook at Jeri Stanfill, Realtor North Valley Phoenix Metro.
0 votes Thank Flag Link Thu Dec 22, 2011
There are a couple of alternatives here. First, I'm going to assume you have an FHA 30 year or 15 year fixed rate mortgage. In that is the case you could refinance into an FHA Streamline loan keeping the same term. Considering today's low rates we could reduce your monthly payment. In order to refinance, the FHA Streamline requirement is at least a 5% reduction in monthly payment. We can't get rid of the PMI, but again your payment should be lower --- just how low we'd need to a little more information to determine. Additionally, the fees to do this are relatively low, but you could have some out of pocket expenses depending on the interest rate we target.

Alternatively, we'd need to get an appraisal to determine if you have 20% equity in the property. The cost for this is about $450. However, before you spend that money if you have a real estate friend they could run comparables in your neighborhood to give you an idea of how close you might be to acheiving 20% equity. If you have 20% equity we could refinance the loan into a conventional product eliminating the PMI. However, as conventional loans are not government backed most lenders are charging about 1/2% or more in ithe nterest rate, so your monthly payment will not be as low, but this could be offset by the elimination of the PMI payment.

There are other considerations as well, so if you'd like to discuss this further please visit my website at or call me at (602) 482-8208. I'd love to help you understand all your options and make the best decision for you.
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0 votes Thank Flag Link Thu Dec 22, 2011
Hi Mj,

Today’s mortgage rates are extremely favorable. You can wait out the 5 years and if your current loan balance is below 78% of the original loan balance than the mortgage servicer will drop the MI. However, if your equity position is good and you can refinance to below 80% loan to value with your home's current market value, than you would definitely benefit from the lower interest rate and lower payment. The cost of obtaining mortgage financing is extremely low and competitive these days. For the past 10 weeks, since interest rates have been so low, my clients are recouping the costs within only a few months due the amount of savings. Good luck and please feel free to call me anytime!

Matthew Remus
0 votes Thank Flag Link Thu Dec 22, 2011
Are you still in contact with the Realtor who helped you buy your home? Ask them (or another Realtor of your choice) to put together a CMA for you, so you can get a rough estimate of the current market value. (Before you can get a loan, you would need a full appraisal, but as a informational tool the CMA should work fine). Based on the value determined in the CMA, you can determine if you should talk to a mortgage broker, or wait until either your balance drops or the property value increases. And congratulations on your impressive achievement in paying down this mortgage.
0 votes Thank Flag Link Thu Dec 22, 2011
The current appraised value of your home along with the loan balance will be used to determine if PMI is required. If the value has decreased your only option would be to pay the loan balance down to achieve the 80% ltv mark needed. Sounds like you need to keep doing what you are doing and wait out the five years.
0 votes Thank Flag Link Thu Dec 22, 2011
To refinance you will most likely need to be 80% or less Loan To Value. So the value would be the current appraised amount. You would need to know what your current appraised value is to see where you stand.

A good loan officer can advise you on the current loan programs available to you base on your LTV.

Best of luck!
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0 votes Thank Flag Link Thu Dec 22, 2011
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