derelict

A couple nights ago my girl and I were looking at our mortgage summary and noticed that after 9 months we had only paid down the principal by $2k. I knew that the early years of a mortgage were primarily very high interest, but this really put things in perspective for me. We took a closer look at the amortization schedule and are now trying to compare our options with an interest only loan. We'd continue to pay the same amount we do now, but with anything extra going straight to principal.

We currently have an 80/20 7yr arm at 5.625. However, we put no money down, so in order to avoid PMI the 20% part of the 80/20 is a second line of credit at 4.625. All said and done, it's like $1300+ going to interest and only $250 going to principal. We got a decent deal on the house, and at this point I am fairly confident that if we were to re-appraise it, we'd have easily covered the 20% amount from our original loan. Would this allow us to fully finance the remaining current principal without PMI? Do most interest only loans require you be in the house 12 months before refi? Given our situation, what possible downside is there to us moving to an interest only loan (such as tax refund in april from paying a lot of mortgage interest with our current rate)?

Thanks!

BigPimp

First thing you want to consider is how long do you think you would be in the property and what is your goal? Are you looking to pay it off or you just want to live there and enjoy.

I imagine this is your first house and as such, you are likely to stay there at most 5 yrs. Thus you could go into a 5/1 ARM. If you think there is 20% equity in the property, then refinancing will help payoff 1st and 2nd mortgage, not sure if it will be enough to get rid of PMI. Have to look at the numbers.

You don't need to be in the property for 12 months before refing, but you have to see if it makes sense. Also, there is a way not to have PMI and still be over 80% equity, at least with my company.

You might also benefit by just making pre-payments on your current mortgage

derelict

Yes this is our first house. It's partly that we were both tired of throwing away money on rent... and also to see how things go living together. That said, I doubt we will be there more than 5 years. The mortgage right now is a pretty big burden on our monthly income, so I'm not sure we could afford to throw more $$ at the principal. But I certainly want to take a look at our current interest payments, and if it's worth our while to stay in this particular mortgage or to refi.

I don't have a problem sharing the #'s... especially if you or other people would be able to lend advice or offer options: House was bought in October of '03 for $295k. I could pull at least 3 comparables in the neighborhood which sold for over $350k in the last 6 months. As of 6/30/04 there was like $292,800 left on the principal. Monthly payment goes something like:

$390 - tax escrow
$220 - 20% loan interest only and varies by # of days in the month
$1100 - 80% loan interest
$250 - 80% loan principal
--------
$1960

There has to be a smarter use of our money for this scenario... $1,320ish a month in interest is rediculous

BigPimp

1742 a month is what I coming up with using the numbers you just gave me, including the escrow. So it will save you over 200 a month.

Here's how I came up with it. If your house is worth 350 then you have 17% equity in the property.
Your new loan will be 295K because you will roll in closing costs. 5/1 ARM rate right now on I/O is about 5.25. We have to add .25 to cover PMI. That works out to be 1352/month of i/o payment. Plus 390 for escrows, gets you to 1742.

You going have to make a decision whether it's worth it for you. It will save you 2400 a year and 12000 over first 5 years.

zeroday

[QUOTE=BigPimp] We have to add .25 to cover PMI. QUOTE]

do people actually pay PMI anymore? i ended up putting 10% cash down on my house and getting two loans..one for 10% to bring me to 20% down at closing and the other for the remaining 80%. the 10% loan carries a slightly higher rate but its stil cheaper than paying PMI. If he's already got PMI and he's not locked into it for a certain amount of time and doesn't have an early payoff penalty, i'd recommend refinancing the loan...put your PMI money towards principle.

edit: just read his whole post..he's got an 80/20 with no PMI. nevermind.

zeroday

how is your 20% loan at a lower interest rate than your primary...isn't it usually higher?

BigPimp

It depends, on your credit, on money down, on the company itself providing the secondary financing. Second loan is typically prime plus whatever. Also, when derelict got his second, the rates were lower than they are right now.

derelict

Thanks for the feedback! Still undecided what to do... currently shopping the internet to find the best rate. Aren't there some brokers that will let you refi for free? Since they get paid a fee by the mortgage company?

BigPimp

Don't fawk with brokers unless you are looking to get fawked. If you want to, I can help you out. I work for one of the largest mortgage lenders in this country as a mortgage consultant.

NSXNEXT

iTrader: (2)

Lucy...you got some 'splaining to do... WHY?

Pimp, PM me, I need to get started. We are closing end of September.

ChodTheWacko

It's not as ridiculous as you think.

Consider: 1) You get a tax break on $1320. So you get roughly $200/month back from this.

2) You aren't paying rent anymore - So subtract off what rent would be, and you'll save even more in future years considering rent tends to go up every year.
3) The value of your house will probably go up, which offsets this even more.