Hi John,

One other thought is to consider not only how long you will be in this home, but also how long you may have this mortgage. Not to say rates will definitely go down in the future but having the possibility of refinancing brings up a couple additional thoughts on each scenario:

1) FHA has a streamlined refinance program which will utilize the current value of your property and assuming current FHA loan limits stay the same, thus take any valuation issue hurdles out of a future refinance. On the other hand, you will only receive a partial credit of your initial 1.75% fee and will have to set up a new up-front premium which will add some additional cost to the refi.

2) Option #2 will prove to be a less expensive loan to refinance, however, you will have to concern yourself w/ future guideline/valuation changes which could pvove to be an obstacle in taking advantage of future sacings opportunities.

Please advise if you need any other info from me,

#1 You'll have to talk to your CPA to see if MI is tax deductible for your current income. There is a certain income ceiling I think where MI is no longer tax deductible. If it's not tax deductible for you, that makes the 6.25% more attractive.

Your payment is $30 higher with the MI and you are paying an additional $12,285 up front MI that you are not paying at 6.25%. Once your loan balance goes slightly below 80% you can try to get the MI removed. So if you plan to stay in the property and keep the loan with the MI, the monthly will eventually fall off which will be a savings of $3,564/mo for you over the 6.25%.

So if you keep the property and the same loan on it for say 10 years, the MI option would be better because the MI will eventually go away. But if you sold before 8-10 years or refinanced, the 6.25% would be better. But also factor in the if the MI is tax deductible or not because that will change the equation.