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Should I refinance?
I think it becomes mostly a mathematical question at this point, but any advice is appreciated. Ok here's the situation: We bought our house in 2010, mortgage (with Bank of America) is currently at $110,587, 5.25% interest fixed in a 30 year FHA loan. My payment breakdown is $892.75 per month with $640.21 for principle and interest, and $252.54 to escrow with a PMI of $50.09. The new mortgage I was considering was with Quicken Loans, it would be an FHA 5/1 ARM with a locked interest rate of 3.875% for 5 years, then variable after that. She said all lender fees are waived, but after 3rd party costs including the PMI premium of $1945, my new loan amount is $113,120. My PMI is more than doubling at $119.45 per month. The total payment goes down to $847.05 with principle and interest at $531.94. Right now we pay $900 to the mortgage per month so we would keep the same payment and be putting $45.70 extra towards the principle for the new mortgage. She also said we would get to skip our next payment in Sept, with the next payment being due Oct 1, and get an escrow refund check for our current escrow of $897, so we could use both of those to pay down the principle. She also said we would refinance again in 3-5 years (at little or no cost since we would be a returning customer) when we have enough equity in the house to qualify for a conventional loan (possibly a 15 year loan) with no PMI. Our house is currently worth roughly $117,000, so our loan to value ratio is not high. We plan to stay in our house for at least the next 10 years depending on our situation at that time.
So with my next $900 payment (using the respective balances and interest rates),
Current with BOA: New with QL:
Principle: 163.64 Principle: 219.61
Interest: 483.82 Interest:365.28
Escrow: 252.54 (PMI 50.09) Escrow: 315.11 (PMI 119.45)
We said yes the same day on Saturday and it bothered my husband so he told me to call and cancel it today. We already put forward a $400 Good Faith deposit which may or may not be refundable, not sure.
Re: Should I refinance?
I would not refinance to this loan option:
Stay away from FHA unless you have 20% or more equity as the PMI is for the LIFE of the loan with FHA (for all new mortgages and refinancing with FHA)
Stay away from ARMs
IF you can find a 30 year or 15 year FIXED mortgage at less than 4.25% AND you plan to stay a long time - then I would refinance.
For now - I would add extra principal payments each month (even an extra $25 will shorten the life of the loan and amount of interest paid. (check your loan papers to make sure there is no prepayment penalty)
Interest rates are on the rise, so an ARM is not a wise option. Your rate will mostly likely increase after 5 years. For such a large debt (mortgage) I am not a fan of the unknown that comes with ARMs. It's a gamble. IMHO, it's not wise to gamble with such a hefty sum that could ultimately harm you.
I think a PP mentioned paying more toward principle to lessen the term of your loan. That is wise.