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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308225  
Subject: Re: FHA Streamline Refinance Date: 5/7/2013 7:09 PM
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Thanks for reminding me of that. At a current value of $119K, I won't fall below that magic 78% threshold until the loan balance is less than $92,800, and I won't have paid the loan down to that level for over a year at my current rate of payment.

Sorry, you misunderstood what I was trying to tell you. Let me be more clear.

FHA loans have MIP which is different than PMI on conventional loans. FHA loans are NOT required to release you from MIP, while conventional loans ARE required (by law) to release you from PMI at 78% of the original valuation, and may release you from PMI at 80% of current valuation. FHA terms for releasing customers from MIP have been tightening significantly - the FHA is losing money because they were the only lenient lender left in town, so FHA effectively became a subprime lender, but did not charge the high rates that subprime lenders need to charge to make money, or at least break even. The MIP premiums that borrowers pay is one of the few ways that the FHA has to raise money to pay for those losses. You would need to read your FHA loan documents to see if there is a point at which the lender is required to release you from your MIP - there may not be, in which case it is left up to the lender if they want to release you.

I can't imagine it would make sense for me to refinance now, and then refinance again next year to jettison the MIP.

Sorry, but you are wrong. It makes ABSOLUTE sense for you to refi now.

The PMI threshold for new conventional loans is 80%, not 78%. If you get a new conventional loan now, your LTV is less 80%, so you won't be required to get PMI at all. Especially at an interest rate of 5.5% on your current loan, vs. 3.25 for 30 year fixed or 2.5 for 15 year fixed, you SHOULD refinance.

Even if your valuation comes in lower, say 115k, so you have to pay PMI, the 78% level will be calculated off of the new value, so you could drop PMI when you get down to $89.7k With your new loan starting at $95k, plus $2.8k for closing costs, you will have to pay down about $9k to hit that level. The interest rate differential on your new loan vs. your current loan should pay for any small PMI that you might have to pay for the first few years until you can get the loan balance down to 78% of the appraisal value at the time you refinanced.

So I suppose I'd have to gamble on interest rates staying low for another year or so and then refinancing to a conventional loan sans MIP. My gut tells me that's a safe bet.

While it may be a safe bet, you will be costing yourself money, since you are likely to be able to refi now without getting PMI, or worst case, having to pay PMI for a few years, but covered by the interest rate differential.

AJ
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