About Chris G. Expertise I am a financial counselor that can answer consumers' personal finance questions in following areas: - Beating & Reducing Debt - Budgeting - Building Savings - Careers & Extra Jobs - Dealing with Collectors - Identity Theft - Money & Marriage - Personal Insurance.
Experience The past four years in the banking field have given me a heart for helping families with their finances to better their financial future.
Question You may be getting lots of questions right now with the financial crisis. I
actually have an interesting question for you. I did as the "real estate"
professionals my question but since they need to make money right now, I
fear they will all say, yes, refinance. I need to ask someone I could trust for an
honest answer to best make my decisions. So here goes:
We currently have a conventional mortgage through my credit union (then got
sold to Central mortgage company) but our interest is at 6.875%. We do not
pay PMI, etc. Our home was purchased at $300 and we put down at least
20%..so we owe, 228.5k....My husband does not feel we should pay PMI
because we put down more than 20%. However credit scores are in the high
500s hence the other banks wanting the PMI. I talked to Bank of America
today and they said on FHA they offer 5% right now and with the PMI it would
come out to be like 5.25-5.5%. We have a 30yr loan...we are not sure how
long we will stay here...at least 5yrs if not more but we do not believe this will
be our final home for our family. We have NEVER paid late on our mortgage
and I have it taken out automatically.
Question is: Would it be worth the savings by refinancing, paying more
closing costs, to get a 5% rate and have to pay PMI whereas now we have
6.875 but do not pay that...??
Thanks so much...I greatly appreciate it! I know with lower interest rates, we'd
like to try and take advantage and feel that we deserve it since we did not buy
a home we couldn't afford and should be rewarded for our loyalty and good
payments, etc.
Answer Generally, you would save money on the refinance if you can get a rate that is at least 1 percent lower than the previous rate. This appears to be the case in your situation. Just be sure that you don't have to pay any points (prepaid interest) to get that low rate. Also, check into the PMI sitation a little more. A mortgage company should only be requiring PMI if you have less than 20% equity in your home. For example: if you owned 80,000 on your home, it would need to be worth at least 100,000 in order to avoid PMI. I would check several different companies before settling on one to refinance.
