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Heloc to pay off mortgage faster
Originally posted by @Nick Moriwaki:
Originally posted by @Duc Ong:
Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc
Originally posted by @Nick Moriwaki:
I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.
If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.
For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.
But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.
From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).
Not sure for in state residents but this is factually false for out of state investors. I've done a few deals with bank of Hawaii and they require 70% LTV for investment properties. (I live in California) I've yet to find anyone in Hawaii that will do it for less and I've contacted pretty much all of them. Their rates are consistently among the worst of my estimates and their online system also sucks. You can't even pull up previous statements online and need to call to have them emailed over. They seriously need a system upgrade and I try to avoid at all costs.
I don’t even have them on my ‘reach out to’ list anymore.
Originally posted by @Mike V.:
Originally posted by @Nick Moriwaki:
Originally posted by @Duc Ong:
Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc
Originally posted by @Nick Moriwaki:
I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.
If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.
For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.
But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.
From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).
Not sure for in state residents but this is factually false for out of state investors. I've done a few deals with bank of Hawaii and they require 70% LTV for investment properties. (I live in California) I've yet to find anyone in Hawaii that will do it for less and I've contacted pretty much all of them. Their rates are consistently among the worst of my estimates and their online system also sucks. You can't even pull up previous statements online and need to call to have them emailed over. They seriously need a system upgrade and I try to avoid at all costs.
I don’t even have them on my ‘reach out to’ list anymore.
Interesting - I talked to the loan officer (albeit a a couple years ago) and he said they would do up to 90%. I'm thinking maybe it's because it was a first position HELOC, rather than second position? Or could be the out of state thing, but that seems a bit odd.
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.
Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".
Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side.
Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.
If I was in your position I definitely wouldn't pay for a full appraisal. Everything I am reading indicates that 78% LTV is a federal requirement. Even if there is an exception to that requirement in your case, it probably makes more sense to just wait until you pay off the next big chunk with your HELOC (as long as that gets you to 70%). A full appraisal in my market runs $700 these days. Even at $400 the numbers probably wouldn't make sense, especially since an appraisal could still come in low. Now if the lender will accept a BPO (broker price opinion) or some other inexpensive valuation, that is a different story. But I think they typically require a full appraisal.
Anyway, just thought I would offer a little unsolicited advice :) Cheers!
Thanks. I always thought it was odd that it was 70%, but I put zero down on it years ago, it's got conventional financing with a low fixed rate because it was our primary at the time, my tenants have been good, I make over $300/month on it, and the PMI is only $39/month, so it's more annoying than anything, but it's a drop in the bucket in the big scheme of things. And like you said, appraisals can be expensive, so it doesn't make sense at least until I know for sure that I will get rid of the PMI by doing it. Anyway, thanks for the advice, I'll definitely try to figure something out once I've paid it down a bit more.
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.
Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".
Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side.
Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.
If I was in your position I definitely wouldn't pay for a full appraisal. Everything I am reading indicates that 78% LTV is a federal requirement. Even if there is an exception to that requirement in your case, it probably makes more sense to just wait until you pay off the next big chunk with your HELOC (as long as that gets you to 70%). A full appraisal in my market runs $700 these days. Even at $400 the numbers probably wouldn't make sense, especially since an appraisal could still come in low. Now if the lender will accept a BPO (broker price opinion) or some other inexpensive valuation, that is a different story. But I think they typically require a full appraisal.
Anyway, just thought I would offer a little unsolicited advice :) Cheers!
FYI - Looks like the requirement changes when you turn it into a rental.
https://www.fanniemae.com/content/guide/servicing/b/8.1/04.html
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.
Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".
Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side.
Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.
If I was in your position I definitely wouldn't pay for a full appraisal. Everything I am reading indicates that 78% LTV is a federal requirement. Even if there is an exception to that requirement in your case, it probably makes more sense to just wait until you pay off the next big chunk with your HELOC (as long as that gets you to 70%). A full appraisal in my market runs $700 these days. Even at $400 the numbers probably wouldn't make sense, especially since an appraisal could still come in low. Now if the lender will accept a BPO (broker price opinion) or some other inexpensive valuation, that is a different story. But I think they typically require a full appraisal.
Anyway, just thought I would offer a little unsolicited advice :) Cheers!
FYI - Looks like the requirement changes when you turn it into a rental.
That makes sense. Thanks for the info.
I need to add a caveat to my previous suggestion that it may be better to use your HELOC to pay down principle and eliminate PMI, rather than paying for an appraisal. I was thinking in terms of a mortgage on a primary residence, where this clause from the Homeowners Protection Act would apply:
There is no provision in the automatic-termination section of the act, as there is in the borrower requested PMI cancellation section, that protects the lender against declines in property value or subordinate liens. The automatic-termination provisions make no reference to good payment history (as prescribed in the borrower-requested provisions) but state only that the borrower must be current on mortgage payments.
You should probably verify that the same rules regarding subordinate liens apply to investment properties before using your HELOC. If your HELOC is secured by a separate property than this is probably a moot point.
Anyway, I didn't want to lead you astray there.
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Originally posted by @Joshua S.:
Originally posted by @Jeremy Z.:
Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.
Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".
Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side.
Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.
If I was in your position I definitely wouldn't pay for a full appraisal. Everything I am reading indicates that 78% LTV is a federal requirement. Even if there is an exception to that requirement in your case, it probably makes more sense to just wait until you pay off the next big chunk with your HELOC (as long as that gets you to 70%). A full appraisal in my market runs $700 these days. Even at $400 the numbers probably wouldn't make sense, especially since an appraisal could still come in low. Now if the lender will accept a BPO (broker price opinion) or some other inexpensive valuation, that is a different story. But I think they typically require a full appraisal.
Anyway, just thought I would offer a little unsolicited advice :) Cheers!
FYI - Looks like the requirement changes when you turn it into a rental.
That makes sense. Thanks for the info.
I need to add a caveat to my previous suggestion that it may be better to use your HELOC to pay down principle and eliminate PMI, rather than paying for an appraisal. I was thinking in terms of a mortgage on a primary residence, where this clause from the Homeowners Protection Act would apply:
There is no provision in the automatic-termination section of the act, as there is in the borrower requested PMI cancellation section, that protects the lender against declines in property value or subordinate liens. The automatic-termination provisions make no reference to good payment history (as prescribed in the borrower-requested provisions) but state only that the borrower must be current on mortgage payments.
You should probably verify that the same rules regarding subordinate liens apply to investment properties before using your HELOC. If your HELOC is secured by a separate property than this is probably a moot point.
Anyway, I didn't want to lead you astray there.
That's a good point. I don't plan on paying it down with a HELOC like on my primary, but I appreciate you bringing it up. Thanks.
Originally posted by @Nick Moriwaki:
Originally posted by @Mike V.:
Originally posted by @Nick Moriwaki:
Originally posted by @Duc Ong:
Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc
Originally posted by @Nick Moriwaki:
I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.
If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.
For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.
But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.
From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).
Not sure for in state residents but this is factually false for out of state investors. I've done a few deals with bank of Hawaii and they require 70% LTV for investment properties. (I live in California) I've yet to find anyone in Hawaii that will do it for less and I've contacted pretty much all of them. Their rates are consistently among the worst of my estimates and their online system also sucks. You can't even pull up previous statements online and need to call to have them emailed over. They seriously need a system upgrade and I try to avoid at all costs.
I don’t even have them on my ‘reach out to’ list anymore.
Interesting - I talked to the loan officer (albeit a a couple years ago) and he said they would do up to 90%. I'm thinking maybe it's because it was a first position HELOC, rather than second position? Or could be the out of state thing, but that seems a bit odd.
Bank of Hawai'i used to provide a first position HELOC up to 89.99% LTV on primary residences (I currently have that HELOC on one of my properties). However, I believe they have recently reduced that limit to 85% LTV.
The 70% LTV that Mike Verna is talking about is only on investment properties.
Originally posted by @Chris Chantavong:
Originally posted by @Nick Moriwaki:
Originally posted by @Mike V.:
Originally posted by @Nick Moriwaki:
Originally posted by @Duc Ong:
Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc
Originally posted by @Nick Moriwaki:
I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.
If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.
For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.
But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.
From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).
Not sure for in state residents but this is factually false for out of state investors. I've done a few deals with bank of Hawaii and they require 70% LTV for investment properties. (I live in California) I've yet to find anyone in Hawaii that will do it for less and I've contacted pretty much all of them. Their rates are consistently among the worst of my estimates and their online system also sucks. You can't even pull up previous statements online and need to call to have them emailed over. They seriously need a system upgrade and I try to avoid at all costs.
I don’t even have them on my ‘reach out to’ list anymore.
Interesting - I talked to the loan officer (albeit a a couple years ago) and he said they would do up to 90%. I'm thinking maybe it's because it was a first position HELOC, rather than second position? Or could be the out of state thing, but that seems a bit odd.
Bank of Hawai'i used to provide a first position HELOC up to 89.99% LTV on primary residences (I currently have that HELOC on one of my properties). However, I believe they have recently reduced that limit to 85% LTV.
The 70% LTV that Mike Verna is talking about is only on investment properties.
Was that 70% reduction recent too? I have 85% on my investment property. That was taken out just under 2 years ago though.
For homeowners, Keybank will go up to 85 LTV at regular rates if you earn less than 10k a month, and up 90 LTV if you earn more than 10k. They will also go above those LTVs, but it becomes a "high value" product, and the rate becomes higher.
When I help my clients we do a first line up to the 85 or 90%, the the high value for anything above that. One client went up to 99.96% LTV.
Our rates for NOO only go up to 50% ltv, unfortunately.
Originally posted by @Nick Moriwaki:
Originally posted by @Chris Chantavong:
Originally posted by @Nick Moriwaki:
Originally posted by @Mike V.:
Originally posted by @Nick Moriwaki:
Originally posted by @Duc Ong:
Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc
Originally posted by @Nick Moriwaki:
I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.
If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.
For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.
But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.
From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).
Not sure for in state residents but this is factually false for out of state investors. I've done a few deals with bank of Hawaii and they require 70% LTV for investment properties. (I live in California) I've yet to find anyone in Hawaii that will do it for less and I've contacted pretty much all of them. Their rates are consistently among the worst of my estimates and their online system also sucks. You can't even pull up previous statements online and need to call to have them emailed over. They seriously need a system upgrade and I try to avoid at all costs.
I don’t even have them on my ‘reach out to’ list anymore.
Interesting - I talked to the loan officer (albeit a a couple years ago) and he said they would do up to 90%. I'm thinking maybe it's because it was a first position HELOC, rather than second position? Or could be the out of state thing, but that seems a bit odd.
Bank of Hawai'i used to provide a first position HELOC up to 89.99% LTV on primary residences (I currently have that HELOC on one of my properties). However, I believe they have recently reduced that limit to 85% LTV.
The 70% LTV that Mike Verna is talking about is only on investment properties.
Was that 70% reduction recent too? I have 85% on my investment property. That was taken out just under 2 years ago though.
Sorry, got my numbers mixed up. You're correct. BOH allows 85% LTV on both primary residences and rental properties as long as they're in the first position. This is a reduction from 89.99% from about a year ago. Second position HELOCs are capped at 70% LTV (on Oahu).
Originally posted by @Steven D.:
PMI % is based on the original amount borrowed, it does not decrease as you pay down principal.
This is absolutely a false statement. Mortgage insurance is calculated annually, using the outstanding balance and LTV ratio.
So, while your payment will be the same for the entire 12 month period, it will change for the next 12 month period based on the reduced principal that is outstanding.
Keep in mind, the annual calculation is completed upon the 12th month of the anniversary of the loan origination, not a calendar year.
Here is an example from my own portfolio for an FHA loan that my husband and I obtained while doing a house hack in 2012, that has since been converted to a rental property....
Original loan amount $247,926
Year 1 PMI - $251.68
Year 2 PMI - $246.94
Year 3 PMI - $242.01
Year 4 PMI - $236.90
Year 5 PMI - $231.58
Year 6 PMI - $226.07
We are currently in year 7. Our loan anniversary is in August, so our PMI hasn't been recalculated for year 7 yet.
Hope that helps clear it up.
@Cara Lonsdale, I'm a bit surprised that it seems you don't have a mortgage on your next primary? (Because by definition, wouldn't PMI be dropped once it's refinanced as a rental?)
Originally posted by @Brent Coombs:
@Cara Lonsdale, I'm a bit surprised that it seems you don't have a mortgage on your next primary? (Because by definition, wouldn't PMI be dropped once it's refinanced as a rental?)
What makes you think it has been refinanced? We satisfied the owner occupied requirement that FHA requires, but don't need to pull any money out, so there is no need to refi. We left the FHA loan on it when we converted it to the rental. The interest rate was 3.75%. There's no way we can touch that on a refi, even without the PMI. One of the benefits of doing a house hack is taking advantage of the lower interest rates and down payment offerings that owner occupied purchases provide. Once the owner occupied requirement has been met, there are no requirements for refinancing. So it just makes sense to keep it...even with the PMI.
Originally posted by @Cara Lonsdale:
Originally posted by @Steven D.:
PMI % is based on the original amount borrowed, it does not decrease as you pay down principal.
This is absolutely a false statement. Mortgage insurance is calculated annually, using the outstanding balance and LTV ratio.
So, while your payment will be the same for the entire 12 month period, it will change for the next 12 month period based on the reduced principal that is outstanding.
Keep in mind, the annual calculation is completed upon the 12th month of the anniversary of the loan origination, not a calendar year.
Here is an example from my own portfolio for an FHA loan that my husband and I obtained while doing a house hack in 2012, that has since been converted to a rental property....
Original loan amount $247,926
Year 1 PMI - $251.68
Year 2 PMI - $246.94
Year 3 PMI - $242.01
Year 4 PMI - $236.90
Year 5 PMI - $231.58
Year 6 PMI - $226.07
We are currently in year 7. Our loan anniversary is in August, so our PMI hasn't been recalculated for year 7 yet.
Hope that helps clear it up.
You are conflating Mortgage Insurance Premium (MIP) on FHA loans with Private Mortgage Insurance (PMI) on conventional loans.
Investopedia - Difference Between PMI and MIP
I believe @Steven D.'s statement is correct, that all PMI is based on the original principal amount borrowed (although I suppose there could be exceptions). But ultimately, it's important for borrowers to understand which type they have and what the rules are for their specific loan/insurance terms.
Originally posted by @Jeremy Z.:
Originally posted by @Cara Lonsdale:
Originally posted by @Steven D.:
PMI % is based on the original amount borrowed, it does not decrease as you pay down principal.
This is absolutely a false statement. Mortgage insurance is calculated annually, using the outstanding balance and LTV ratio.
So, while your payment will be the same for the entire 12 month period, it will change for the next 12 month period based on the reduced principal that is outstanding.
Keep in mind, the annual calculation is completed upon the 12th month of the anniversary of the loan origination, not a calendar year.
Here is an example from my own portfolio for an FHA loan that my husband and I obtained while doing a house hack in 2012, that has since been converted to a rental property....
Original loan amount $247,926
Year 1 PMI - $251.68
Year 2 PMI - $246.94
Year 3 PMI - $242.01
Year 4 PMI - $236.90
Year 5 PMI - $231.58
Year 6 PMI - $226.07
We are currently in year 7. Our loan anniversary is in August, so our PMI hasn't been recalculated for year 7 yet.
Hope that helps clear it up.
You are conflating Mortgage Insurance Premium (MIP) on FHA loans with Private Mortgage Insurance (PMI) on conventional loans.
Investopedia - Difference Between PMI and MIP
I believe @Steven D.'s statement is correct, that all PMI is based on the original principal amount borrowed (although I suppose there could be exceptions). But ultimately, it's important for borrowers to understand which type they have and what the rules are for their specific loan/insurance terms.
FHA is MIP. You are correct. My sample above is for FHA MIP. I stated FHA, but I also used PMI, so I can see how it may have been confusing.
The point I was trying to make is that FHA mortgage insurance DOES reduce over time. It is the same payment for 12 months at a time, but then it re-calculates annually based on the outstanding balance.
Hopefully, that clears it up.
Conventional financing PMI should be the same (re-calculated each anniversary year based on the outstanding balance and the LTV). It should be just like anything else insurance related....when the risk goes down, so does the premium. As you pay down the LTV, your risk is lower for the lender to hold that note.
Originally posted by @Cara Lonsdale:
Originally posted by @Brent Coombs:
@Cara Lonsdale, I'm a bit surprised that it seems you don't have a mortgage on your next primary? (Because by definition, wouldn't PMI be dropped once it's refinanced as a rental?)
What makes you think it has been refinanced? We satisfied the owner occupied requirement that FHA requires, but don't need to pull any money out, so there is no need to refi. We left the FHA loan on it when we converted it to the rental. The interest rate was 3.75%. There's no way we can touch that on a refi, even without the PMI. One of the benefits of doing a house hack is taking advantage of the lower interest rates and down payment offerings that owner occupied purchases provide. Once the owner occupied requirement has been met, there are no requirements for refinancing. So it just makes sense to keep it...even with the PMI.
I already got that it wasn't refinanced. I was referring to you being never able to get another FHA owner-occupier until it is (or, paid off), and so was curious as to what type of loan your current primary has on it (if any)? [Unless of course you're still "house hacking" the same primary, in which case it could always have also been a rental]. Or, do Lenders just allow owner-occupier rates for multiple primaries at the same time? [If true, I find that weird].
As for PMI vs MIP, I think you'll find that they're used interchangeably around BP, and it's probably a bit late to educate everyone. [Much like the dictionary people have now officially altered the meaning of the word "literally" to also mean "metaphorically" ie. its opposite!]...
Originally posted by @Brent Coombs:
Originally posted by @Cara Lonsdale:
Originally posted by @Brent Coombs:
@Cara Lonsdale, I'm a bit surprised that it seems you don't have a mortgage on your next primary? (Because by definition, wouldn't PMI be dropped once it's refinanced as a rental?)
What makes you think it has been refinanced? We satisfied the owner occupied requirement that FHA requires, but don't need to pull any money out, so there is no need to refi. We left the FHA loan on it when we converted it to the rental. The interest rate was 3.75%. There's no way we can touch that on a refi, even without the PMI. One of the benefits of doing a house hack is taking advantage of the lower interest rates and down payment offerings that owner occupied purchases provide. Once the owner occupied requirement has been met, there are no requirements for refinancing. So it just makes sense to keep it...even with the PMI.
I already got that it wasn't refinanced. I was referring to you being never able to get another FHA owner-occupier until it is (or, paid off), and so was curious as to what type of loan your current primary has on it (if any)? [Unless of course you're still "house hacking" the same primary, in which case it could always have also been a rental]. Or, do Lenders just allow owner-occupier rates for multiple primaries at the same time? [If true, I find that weird].
As for PMI vs MIP, I think you'll find that they're used interchangeably around BP, and it's probably a bit late to educate everyone. [Much like the dictionary people have now officially altered the meaning of the word "literally" to also mean "metaphorically" ie. its opposite!]...
Interesting fact....I obtained an FHA loan prior to my husband and I getting married. Then he obtained the FHA loan for the primary loan that I mentioned. So, we actually hold 2 FHA loans between us. Additionally, he has a VA on another property that we house hacked before that! So, yes, we have multiple owner occupied loans out there...ALL obtained legally, and ALL lived in by us for the required minimum (and in all cases, BEYOND the 12 month requirement). We keep them on there because the rates and terms that we got at the time far exceed what we could refinance them for now, even when paying mortgage insurance (we only pay mortgage insurance on 1 of them now).
Our investment strategy is to have free and clear properties that fund our retirement, so refinancing to cash out isn't our goal at this point, but rather to get the most favorable terms at the time of acquisition, and pay them down quicker.
To answer your question about our current owner occupied.....while we have used our FHA and VA loan(s), we were still able to purchase our primary residence with a 5% down payment on a conventional loan. The loan amount is higher than any of our rentals, so we wanted the MI to be as low as possible (conventional MI is always lower than FHA). We are also in a quickly appreciating market (Scottsdale, AZ), so we knew that we could petition our loan servicer to remove it after a short time, which is easier to do with a convetional loan vs an FHA which can stay on there for the life of the loan.
@Brent Coombs "Or, do Lenders just allow owner-occupier rates for multiple primaries at the same time? [If true, I find that weird]."
I have one owner occupant loan, and am about to get my second. I don't know specifically that FHA does allow more than one with the FHA but I haven't heard otherwise. I've satisfied the 1 year requirement on my current non-FHA owner occupany loan, and am a few days away from closing on an FHA owner occupant loan. It hasn't been an issue.
Originally posted by @Chris May:
@Brent Coombs "Or, do Lenders just allow owner-occupier rates for multiple primaries at the same time? [If true, I find that weird]."
I have one owner occupant loan, and am about to get my second. I don't know specifically that FHA does allow more than one with the FHA but I haven't heard otherwise. I've satisfied the 1 year requirement on my current non-FHA owner occupany loan, and am a few days away from closing on an FHA owner occupant loan. It hasn't been an issue.
You're not being put to the test with FHA regarding whether "FHA does allow more than one with the FHA", because, your current mortgage is a "non-FHA owner occupancy loan" anyway!
I think you'll find that if your current loan was FHA-approved, you'd have to refinance out of it, before applying for another (resulting in a similar outcome to your current arrangement). But if you can do so each time with just 5% down using conventional owner-occupier Lending (without needing to refinance), I can see why many folk deliberately choose to move every year or two, with a string of owner-occupier (30 year) low interest rate mortgages in their wake, all being paid off by tenants! This seems magical, right? Why don't more nomadic-ready people do that?
(I was previously under the impression they'd always have to refinance out of their previous o-o loan into investment loans once they moved and applied for a new o-o mortgage).
Does anyone out there have more than 3x co-existing owner-occupier mortgages?...
This does work ill break it down with real numbers. I made $18 an hour with out over time my monthly income 2,400.
My out going bills were just a little less then that. Getting a second job would have made this even easier.
Let me start by the bank was willing to give me way way way more then I needed. My mortgage balance was 120,000 and the equity was almost 100,000. My plan was to start a manageable snowball.
So 120,000, my mortgage payment was 1,056.72, 531 to interest 209 to principal and the remaining between taxes and pmi. So every month i was paying 1000 dollars and my mortgage would go down 200 dollars. I.e. getting no where. I had saved 3,000 dollars.
No introduce HELOC I borrowed 10,000 dollars and paid it directly too my principal. At 200 a month in principle it would have taken 5 years to do that. So back to the point I now have a 110,000 dollar home loan with the a 1,056 payment but more going to principal because I'm not being charged 10,000 worth of interest. As I said my monthly out going bills is a little less then 2,200.
So my bills expenses without my mortgage for car insurance a car payment electric oil etc food was right around 1000 a month. So each pay check depending on overtime of 600-800 went right into the heloc. The first month 3600 went into my heloc. So it went from a 10,000 dollar balance too just under 7,000. I used the part of the 3000 I had in savings to pay my mortgage for that month and my bills I now had about 700 in savings. The following month I did the same thing this time I was only able to put 2,200 to the heloc the 700 from savings paid my bills and the extra I made in overtime paid my mortgage. My Heloc is now just over 5,000 and my mortgage is 10,000 dollars less and it has been 60 days. With out the saving buffer this process slows down a lot, at this point I would pay all my bills and throw extra at the heloc. It took me 2 more months to get the heloc down to 0.
Some people will say well you had 10,000 dollars to pay off the heloc you could have just paid that too your mortgage. Although true it isn't. A sudden 10,000 lump sum to my mortgage saved me 30,000 in interest and took 5 years off of my loan. If I every time I had 400 left over and threw it at the mortgage you cut it down a little bit but you are still paying hard interest. The Heloc also gave me some financial stability, if I suddenly had a major expense or problem even though 10,000 was off my mortgage I could still spend money to fix a problem. If I had put every cent for 4 months into my mortgage amd something went wrong I would have had too take a loan or panic.
So again in 4 months I took 10,000 of of my mortgage. Now it was close to November, so I used the Heloc to pay my oil while I paid my bills and put money into savings again. When tax time came around and I got my refund. I took an immediate 10,000 off of my mortgage bring my mortgage down to 97,000. I had my tax returns and saving of about 5,000. Work was slower as the ground was frozen in April in Maine. I was getting 40 hours and seeing about 600 a week. The first month I out 2400 in to the heloc, and paid my bills out of savings. The following month I did the same thing, going into may the season was full swing and I was right back up to 60 hour weeks seeing 800 a week. So at the end of june I paid my heloc of again. So in 1 year I took 25,000 of principle of my mortgage. Again making large amounts of overtime I started paying my bills and saving money so I could refinance my loan as it was now 50,000 less then it was 4 years prior. This saved me as my monthly payment went down. For 4 years of making payments I had paid 48,000 to my mortgage not including the extra payments I made to the principle when I could. I'm 4 years of paying monthly mortgage payment I paid 48,000 dollars and only 8000 had gone to the principal. So in 4 years I paid 12000 less in principal then I did in 1 year using a heloc. I also saved my self 100,000 in interest. It would have taken another 6+ years to get my mortgage to where it currently was. Having a smaller mortgage payment and using the heloc method over another year my mortgage is down to 50,000 dollars. So I 6 years I turned 150,000 into 50,000 unfortunately had I known about this sooner I could have paid my house off sooner. I expect that I will have my house paid off in the next two years. At which point I will be 30 and I can start funneling every cent into savings or invest in money making properties etc.
Had I stuck to just making mortgage payment for 30 years I would have paid almost 400,000 dollars for my 150,000 dollar home and it would have taken a large piece of my finances for 30 years instead it will have been 8 years and 20 of the years I would be struggling I will now be saving.
Originally posted by @Kyle Kent:
This does work ill break it down with real numbers. I made $18 an hour with out over time my monthly income 2,400.
My out going bills were just a little less then that. Getting a second job would have made this even easier.
Let me start by the bank was willing to give me way way way more then I needed. My mortgage balance was 120,000 and the equity was almost 100,000. My plan was to start a manageable snowball.
So 120,000, my mortgage payment was 1,056.72, 531 to interest 209 to principal and the remaining between taxes and pmi. So every month i was paying 1000 dollars and my mortgage would go down 200 dollars. I.e. getting no where. I had saved 3,000 dollars.
No introduce HELOC I borrowed 10,000 dollars and paid it directly too my principal. At 200 a month in principle it would have taken 5 years to do that. So back to the point I now have a 110,000 dollar home loan with the a 1,056 payment but more going to principal because I'm not being charged 10,000 worth of interest. As I said my monthly out going bills is a little less then 2,200.
So my bills expenses without my mortgage for car insurance a car payment electric oil etc food was right around 1000 a month. So each pay check depending on overtime of 600-800 went right into the heloc. The first month 3600 went into my heloc. So it went from a 10,000 dollar balance too just under 7,000. I used the part of the 3000 I had in savings to pay my mortgage for that month and my bills I now had about 700 in savings. The following month I did the same thing this time I was only able to put 2,200 to the heloc the 700 from savings paid my bills and the extra I made in overtime paid my mortgage. My Heloc is now just over 5,000 and my mortgage is 10,000 dollars less and it has been 60 days. With out the saving buffer this process slows down a lot, at this point I would pay all my bills and throw extra at the heloc. It took me 2 more months to get the heloc down to 0.
Some people will say well you had 10,000 dollars to pay off the heloc you could have just paid that too your mortgage. Although true it isn't. A sudden 10,000 lump sum to my mortgage saved me 30,000 in interest and took 5 years off of my loan. If I every time I had 400 left over and threw it at the mortgage you cut it down a little bit but you are still paying hard interest. The Heloc also gave me some financial stability, if I suddenly had a major expense or problem even though 10,000 was off my mortgage I could still spend money to fix a problem. If I had put every cent for 4 months into my mortgage amd something went wrong I would have had too take a loan or panic.
So again in 4 months I took 10,000 of of my mortgage. Now it was close to November, so I used the Heloc to pay my oil while I paid my bills and put money into savings again. When tax time came around and I got my refund. I took an immediate 10,000 off of my mortgage bring my mortgage down to 97,000. I had my tax returns and saving of about 5,000. Work was slower as the ground was frozen in April in Maine. I was getting 40 hours and seeing about 600 a week. The first month I out 2400 in to the heloc, and paid my bills out of savings. The following month I did the same thing, going into may the season was full swing and I was right back up to 60 hour weeks seeing 800 a week. So at the end of june I paid my heloc of again. So in 1 year I took 25,000 of principle of my mortgage. Again making large amounts of overtime I started paying my bills and saving money so I could refinance my loan as it was now 50,000 less then it was 4 years prior. This saved me as my monthly payment went down. For 4 years of making payments I had paid 48,000 to my mortgage not including the extra payments I made to the principle when I could. I'm 4 years of paying monthly mortgage payment I paid 48,000 dollars and only 8000 had gone to the principal. So in 4 years I paid 12000 less in principal then I did in 1 year using a heloc. I also saved my self 100,000 in interest. It would have taken another 6+ years to get my mortgage to where it currently was. Having a smaller mortgage payment and using the heloc method over another year my mortgage is down to 50,000 dollars. So I 6 years I turned 150,000 into 50,000 unfortunately had I known about this sooner I could have paid my house off sooner. I expect that I will have my house paid off in the next two years. At which point I will be 30 and I can start funneling every cent into savings or invest in money making properties etc.
Had I stuck to just making mortgage payment for 30 years I would have paid almost 400,000 dollars for my 150,000 dollar home and it would have taken a large piece of my finances for 30 years instead it will have been 8 years and 20 of the years I would be struggling I will now be saving.
No. It "worked" because you were diverting your tax refund, overtime pay, etc to your debt repayment. The HELOC had nothing to do with it.
Hi, everyone, just came back to give you an update in case you're interested. As you can see below, I'm getting about a 160% return on my extra principal right now having saved about $50,000 in interest and only putting in $30,000. I'm paying $114/month interest on my HELOC, but that's a wash because after taking the large chunks off of my mortgage, the interest portion of my regular payment is $106 less per month which basically pays for the strategy. I've also taken 4.5 years off of my mortgage in a little over 5 months. I haven't emptied my emergency fund, been working overtime or an extra job, put a tax refund in, skimped or scraped by on anything, etc. - I simply put in a chunk of my own money at first to see how the numbers worked and then used the strategy and that's it. There's no secret magic formula going on, I don't think I'm a financial wizard or anything, it's just a smarter way to manage your mortgage.
The thing that I think is unfortunate is that no one seems to grasp that you're skipping interest payments by paying the principal early and that makes it worth it to borrow some funds that you can pay back in this way. I tried to show you all on bankrate and other calculators that you are literally skipping payments, asked someone to show me how else the savings could be so high if you're saying they are coming from somewhere else, etc. and no one seems to have an answer or want to acknowledge it. Well, here it is in black and white, my mortgage company is letting me know I've skipped / saved 53 payments and $48,500.
In this time, the interest portion of my payment went from around $950 to $850 (the $106 I referenced earlier) for an average of $900 over those hypothetical 53 payments. 53 x $900 = $47,700, which is basically the number they are giving me below (within a margin of error). I skipped over those payments because I gave them back the money early. Or you know, maybe I'm wrong and "skipping payments" is shorthand for the fact that they're cutting payments off the END of my loan where I'm only saving a little bit PLUS I'm saving $100/month and that adds up to $48,500, but 1) I can't make that work and 2) why do I care to use an over-complicated explanation especially if it arrives at the same number? But that's part of the reason I wanted to update you math geniuses - to see if I'm not ACTUALLY skipping over these payments to arrive at the interest savings then I'd like to know where else the savings could be coming from. I'm still open to other ideas if anyone has any, but I'm not going to ignore my own eyes when I've checked every mortgage calculator I can find and my own mortgage company is telling me what the savings are and they all match up within a thousand dollars. The answer before was that mortgage calculators aren't perfect - okay, great. But if they are so wrong, how are they all coming up with the same answer? Could it be that you just think "skipping payments" is too good to be true and won't allow yourselves to believe it? As I said before, if I won $250,000 in the lottery tomorrow and dumped it on my $300,000 loan the interest portion of subsequent payments would be reduced, but not enough to account for all the savings. The savings are coming from the fact that the $250,000 payment would cancel all those small "scheduled payments" and save me the associated interest. How you guys can't see that is mind-boggling.
Anyway, as we concluded before, I understand that I could just use a HELOC as back up and take all my extra money at the end of the month and dump it on the mortgage, etc. But just because there are other ways to skin a cat doesn't mean this is a bad one. In that scenario, you're not quickly skipping 53 payments like I have, either, so all I'm saying is that this is the "best way" to skin this particular cat. If anyone wants to provide an alternate explanation as to how I've saved 4.5 years and $48,500 so far with a simple change like this I'm all ears. :) <333
PS - The $100/month or so savings I mentioned for the remaining 23 years (276 mo) of my loan (as of right now) works out to $27,600. The interest portion of my LAST 53 payments on my ammo schedule average out to $115/month, so about $6100 total.
$27,600 + $6100 = $33,700
That's obviously not $48,500, so unless I'm missing something the idea of the savings coming from the end of my mortgage (the part that's supposedly being cut off) plus my monthly savings going forward is incorrect or at the very least insufficient. Meanwhile, adding my current 53 interest portions together as I showed above neatly adds up to what the mortgage company is quoting as my savings. So, like I said, someone feel free to explain where the savings comes from if I'm not actually "skipping payments", but I'm not willing to accept it unless it matches up with a professional / impartial calculator and what my mortgage company is quoting me. They are losing money when I pay early, so if anything they have a vested interest in keeping me on the 30 year path and wouldn't inflate my savings to give me more incentive to pay early. They have actually been sending me refi offers and coupons for money off closing and stuff trying to slow me down and get more money out of me, not giving me incentives to pay early. Thanks! :-D
@Joshua S., I'm not sure why you reckon that reverse psychology will work on your readers, but the answer to "where the savings comes from if I'm not actually "skipping payments"" is in your previous post: "I simply put in a chunk of my own money at first"!
The concept of using borrowed money to try and achieve the same result makes zero sense!
And, what's the bet you do take up one of those offers, well before paying out your mortgage!?
[Or, you could be irresponsible as an investor, and refuse to re-borrow against your equity]...
Brent, I honestly don't know what you're talking about. I just came back to show you how it's going and ask a question:
In my opinion, I'm using the HELOC strategy to skip mortgage payments and save the associated interest. This calculation lines up with what I'm being told is my savings by every mortgage calc that exists and my mortgage company. If this is not correct, THEN WHAT IS THE CORRECT EXPLANATION OF THE SAVINGS THAT MATCHES UP WITH THE CALCULATION I'M PROVIDING YOU?
I may have asked it five different ways to try to cover all bases, but it's that simple. Actually, you seem to be confused by the idea of my money vs borrowed money, so let's make it even simpler. When you prepay principal on your mortgage (regardless of where the money comes from - your aunt gave it to you or you took it out of savings or won $10,000 on a scratch off card), I believe you are skipping payments and therefore not paying the interest that you were scheduled to pay. This is supported by the savings and calculations I'm giving you. It all matches up nicely. If you disagree, then in what way are the savings occurring and what are the supporting calculations? That's all I want to know. Remember, Aunt Jody gave you $10,000 and you put it on your mortgage - where does the interest savings come from?
Originally posted by @Brent Coombs:
@Joshua S., I'm not sure why you reckon that reverse psychology will work on your readers, but the answer to "where the savings comes from if I'm not actually "skipping payments"" is in your previous post: "I simply put in a chunk of my own money at first"!
The concept of using borrowed money to try and achieve the same result makes zero sense!
And, what's the bet you do take up one of those offers, well before paying out your mortgage!?
[Or, you could be irresponsible as an investor, and refuse to re-borrow against your equity]...