Worth refinancing my mortgage?

[sergio]

I'm in the following situation:

House value: $242,000
Mortgage: $221,800 remaining, 30 yr fixed @ 4.5% with $66/month PMI
Monthly principal + interest: $1150

We've paid $500-600 extra every month. Inquired about refinancing to a 15-year and have the following offer:

Mortgage: 15 yr fixed @ 4%, $22/month PMI
Net fee: $800
Monthly principal + interest: $1605
Can pay down to 90% LTV (approx $4k) at closing to avoid appraisal

I currently max out my 401k, HSA, FSA, and have a fully funded emergency fund. Wife doesn't work (but will later this year). We already pay the "15-year payment" on my 30yr monthly mortgage, so we figure why not get the lower rate and much lower PMI?

We're worried if rates skyrocket, we may never get a chance to refinance. We also worry if the market takes a dump, we may not get to invest the absolutely max in our taxable accounts and Roth IRAs. Both scenarios seem plausible.

Any thoughts on this? Thanks!

 

[jazz4cash]

I'd be surprised if there are no other fees built into that loan offer. Have you inquired into getting relief from the PMI? When I was in similar position, it was always more attractive to just continue putting as much as possible on the current mortgage, but there was always more than $800 in fees to consider. The 30 yr is more flexible if you decide you need to just pay the minimum payment for whatever reason.

What are the APRs on these loans?

 

[sergio]

I'd be surprised if there are no other fees built into that loan offer. Have you inquired into getting relief from the PMI? When I was in similar position, it was always more attractive to just continue putting as much as possible on the current mortgage, but there was always more than $800 in fees to consider. The 30 yr is more flexible if you decide you need to just pay the minimum payment for whatever reason.

What are the APRs on these loans?

I did a quick analysis. $1634 is the monthly payment on the 15 year loan. The breakdown of the 15 vs 30 year equivalent on the new loan would be:

15: 885 principal + 751 interest + 22 PMI = 1634
30: 726 principal + 817 interest + 66 PMI = 1634

so I'm essentially get a "free" $134/equity. That's tough to pass over, especially since we take the standard deduction and we get no "benefits" for paying interest. Total interest paid over the loan would be about $18k lower in the 15 year mortgage vs paying down the 30yr in 15 years.

The fees in the quote are:

$2,250 in loan costs ($2,000 of which is the escrow) and $551 in recording/transfer fees.

He would not budge on the PMI, but going from $66 to $23 is already a huge reduction IMO.

 

[Spock]

That math is a mess.
First post the 30 yr is $1150 + 66 PMI = 1216
last post the 30 yr is "726 principal + 817 interest + 66 PMI = 1634" (it isn't, those numbers total 1609)



Whatever.
With the current economy trending down you'll have to assess your job stability... it might be worth keeping the current 30 year for the lower payment if you can ever figure out what your payment actually is.

 

[jazz4cash]

I would’ve applied all the cost associated with the refi (including the 4K payment) to prepay the current mortgage. Then I’d compare the 30 yr with all those prepayments and extra principle payments to the 15. As far as the PMI, I meant to imply it may go away when you get enough equity ( depends on details of the loan.

 

[l8_apex]

Based on my prior experience with refis, the new broker/lender's fee are more than $800. With your quote they're burying some of their cost somewhere, most likely in the new rate. Did you get any other quotes, and did you try at least one internet discount focused lender?

I personally wouldn't bother doing a refi to get a 0.5% rate change, but my situations never involved the other factors that yours does.

As another poster mentioned, I'd first try to get rid of the PMI on your existing loan.

You said you're worried about being able to invest the max in your retirement accounts. Seems like going from a 30 yr to a 15 yr mortgage is counterproductive to your concern/desire.

What's your end goal here? There are many people who psychologically like the idea/fact of having no mortgage on their home. I'm not one of them. I built my home and paid cash along the way, then months later did a 75% LTV cash out refi and invested all of that money.

 

[Another Reader]

In this situation, I would pay the mortgage down to the point I could get the PMI removed. If you went in with less than ten percent down, I wonder how much you have in reserves to make the higher payments if you lost your job or had a major health issue.

How did you come up with the value? Was an appraisal done or are you estimating from Zillow or a similar source? The appraised value the lender gets from the appraiser determines how much you will pay in PMI, if you have to pay it.

 

[Scuba]

We had a 15 year mortgage and when rates dropped, we refinanced to a 30 year. For us, the flexibility of the lower fixed payment gave us peace of mind. Our rate is low so we’ve never considered paying extra as we’d rather invest the money.

We didn’t have PMI. If I were you, I’d find out how to get rid of PMI on your current loan and work towards that.

 

[BeachOrCity]

You can pay down principal to 80 percent or original ltv and the lender then has to cancel PMI (double check with them on this). I think it is based on the original appraisal.
I view the .5% interest as a risk premium that is not overpriced.
My focus would be getting to 80% ltv. Then continue paying like it is a 15 year mtg.