Is a refi worth $250 savings on the pmt for a cost of $5921?

Question

So my current mortgage is a FHA loan at 4.375% with a $2600 pmt and I have 28.5 years left with a $340,276 balance. Values in my area have gone up more than 5%. My house is a 3-unit MFH and comps are hard to find because I am surround by mostly SFH. But it probably is worth around $400k now because I renovated one of the units. I purchased this house last May 2019 for $360k. So my question is this....how should I structure my refi? I don't need any cash. My current lender offered me 2.75% rate with the FHA fee of $5921 rolled into the loan. If I keep the 28.5 years, it is $2350 pmt. This requires no appraisal, no credit pull, no income verification, and a 45 day closing. Another lender offered 2.5% rate with a $330/mo savings on the payment but I'd have a 60 day closing with the appraisal, income, credit pull etc. Our credit is in the mid 700's and income went up 2%. Nothing else changed. I just want to lower my payment as much as possible and get the best deal. Any thoughts or suggestions?

Anthony Gayden · Answer

With the numbers you just threw out yes I would refinance. Here is why. $5921 / $330 = 17.9424242. That means that within 18 months or a year and a half, the cost savings would pay for the refinance. So unless you plan on selling prior to 18 months, it would be a money maker for you. Even with your figure of $250 savings, you would have paid for the refinance with the cost savings in 24 months.

Summer Cherry · Answer

Thank you Bradley. Yes it is a Streamline and I am only expected to live in the house for 6 months. Once I make it past this, I can rent out my 3rd unit and cash flow nicely. Yes it does seem like a no-brainer lol.

Bradley Padula · Answer

Refinancing while its still an owner occ seems like a no brainer

Sounds like your current lender is offering you a Streamline Refi. If it is, your existing upfront MIP (the FHA fee you refer to) in your current FHA loan (if you rolled it into your current loan), a portion will be credited against the new MIP you roll into your new loan. There is a decending scale based on how long you've owned the home. I believe they use the purchase price as the "value", so it doesn't really matter if the home has appreciated at all if you just care about dropping the interest rate / payment

https://mymortgageinsider.com/...

Either way, you'll likely still have closing costs so keep that in mind as you work through the math. Probably somewhere in the $5k to $8k range.

I did a streamline refi on a duplex in MA and went from 4.5% to 2.875%, easy process particularly due to no appraisal needed (less disruption to you and tenants) and no income verification etc (less docs to submit).

Joe Edwards · Answer

@Summer Cherry Oh yeah that's a go! 3k a year in savings is huge. You can use that 3k to make a additional payment a year to pay down the principal.

Your winning either way

David Robinson · Answer

@Summer Cherry Its been a while since I did conventional loans ,but have you looked refinancing to a conventional mortgage, getting rid of fha mortgage insurance,  and different teems in years, sometimes the 15yr can have a better rate than the 30.

Kuriakos Mellos · Answer

@Summer Cherry Sounds like a win to me!

I am not sure what your new rate is going to be - but I was able to save quite a bit of money on the 'points' of the closing costs. How?  Get one or two bids - one of them will always have a better percentage.  Ex (I am not sure if we are allowed to put lenders on here but I will just refer to them as lender A and B).

I wanted to refinance my primary condo (as it would net me about $300 a month in savings - which is almost the equivalent of investing in a new property!). Lender A - who I have the current primary with - quickly approved me for the refinance but gave me a point charge of 3.35% of the cost ($5360) of the loan on a $160 K loan. When you apply for any sort of mortgage application, you are able to show around without any additional hits on your credit.  Lender B kept calling me and I finally answered and I am glad I did! Their 'points' cost me only 2% of the cost of the loan of $160 (total costs of $3200) - saving me quite a bit of money.

While my numbers are reflective of a primary condo, I suggest to you that you shop around and see what deals you can get on points and other closing costs. You would be surprised!

Ray Evans · Answer

@Summer Cherry So you will save 3000 a year for 28 years or 84000.And your question is that worth 5 grand?I would think so.🤔

Steve Morris · Answer

If its a long-term hold and you can pay for the cost with 2 years (or less) of savings on the payments - Think I'd do it.

I don't think rates are going up, but banks are getting a lot pickier on qualifying borrowers.

Tchaka Owen · Answer

@Summer Cherry - keep in mind that this isn't quite apples to apples. In the first scenario, you have what appears to be a streamlined refinance that matches the 28.5 years you have remaining. That's a great comparison to your current situation. The second scenario is a full loan origination process (nothing wrong with that) and will likely cost you more - perhaps an extra $2k. The rate is a tad lower, BUT...your savings is partly because you're starting all over with a 30 year loan. If you calculate with paying at 28.5 years, you'll notice the savings to be approximately $48/month less. Is that bad? No. However, you owe it to yourself to do an apples to apples comparison. If low payment is all that matters, go with #2. That said, here's my opinion:

1. See if there's an option to go Conventional because mortgage insurance will drop off once you have enough equity. With an FHA, it's permanent. Like luggage.

2. Although you'll get a slightly lower rate with the 2nd scenario, I'd very likely go with the 1st simply because of the ease. You don't have to go through any headaches. On top of that, you're going to save about $2000 (if not more) over the 2nd so that monthly savings won't break even for nearly 4 years. $250/month is sweet as is.

Good luck with whichever direction you go.

Summer Cherry · Answer

Yes that is what I thought. I will be keeping this property for the long haul. 4.375% seems so expensive now! We are getting spoiled!

Is a refi worth $250 savings on the pmt for a cost of $5921?

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