Should I refinance my current mortgage?

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Mortage amount: 157,500$ (orignal amount 159,570$ in dec ’07)
Interest Rate: 6.375% (conventional 30yr fixed)
Princ / Inter : 995$
PMI: 127$

New Proposal:
Interest Rate: 5.25% (25 yr FHA fixed)
Princip / Inter: 1002$
Mortgage Insurance: 75$
Closing Costs: 5400$
Prepaid Items: 4400$
New Loan ammount: 167,300$

– Home appraisal: 170,000$
– My wife have 0$ debt outside of our mortgage because we have been paying the minimum on our mortgage to pay off all bills (credit cards, cars, loans). We are thinking of paying more towards our mortgage (~ 200-300$ ) extra, but wanted to see if it makes sense to refinance before we do.

Please advise.
– Oh yeah, my wife and I expect to stay in our house at least 15 years.

  1. Reply
    May 1, 2011 at 1:23 am

    You are only saving $ 45 per month so it will be a long time before you recover your closing costs and prepaids of $ 9,800.

    If your appraisal is still good at 170k, another thought is to come up with a way to pay down your existing pricipal balance to 136k, and then apply to have the PMI removed as you will be at an 80% LTV ratio. That drops your payment by $ 127 per month. Most lenders will do this (or may even have to) unless your closing documents have something prohibiting this.

    Also see if your current lender will give you a rate modification. They don’t want to lose good accounts (yours sounds like one) and they might get you a little below 6% for just a simple $ 300-$ 500 fee; the original maturity date stays put. This is not the type of modification that borrowers in distress are asking for, so make sure they understand you are considering a refinance and wondered if they were offering good rate mods to their good customers.

    Just a couple of other things to think about, along with refinancing.

  2. Reply
    May 1, 2011 at 1:43 am

    You should consider getting your credit restored first, since you have the time and you will probably save thousands on your new loan… Credit restoration is an intricate, detail oriented process, and it pays to hire an Attorney who understands the law intimately, and can exercise your rights. The only place I found on the internet for an affordable and experienced attorney is:

  3. Reply
    Dan P
    May 1, 2011 at 2:08 am

    You are improving your interest rate by ALOT. There is no doubt in my mind on whether that is a good decision or not. It is, especially if you send in extra, you are going to save tens (if not hundreds) of thousands of dollars…

    However, it looks like you’re being charged 3-3.5 points. You can probably get better pricing…

    If you’ve already gotten an appraisal, use that appraisal and shop around with other lenders to see if there’s a better deal.

  4. Reply
    Natalie S
    May 1, 2011 at 2:48 am

    No, it does not make sound financial sense to spend $ 5400 in closing costs to save $ 45 per month. It would take you ten years to break even.

    Don’t do it. Just see if you can negotiate a lower interest rate without refinancing.

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