Real Estate and Home Mortgages - trying to get a lower monthly payment

my mortgage payment is 850 a month, that includes taxes, insurance, and PMI. i have a 30 year mortgage at a fixed interest rate of 6.3%. i would like to possibly refinance to get a lower payment, some things have happend and im having a hard time paying the 850 a month. i know they have those interest only loans where you only pay the interest, i dont want to do that, cause one day i would like to sell and wouldnt be paying anything on the principal. i dont really think i have any options, but wanted to ask anyway. thanks.

It is truly a matter of doing the math. Most traditional mortgages are "amortized". Basically it is set up so that you make a payment to the previous months accrued interest and a scheduled amount to principal. The loan starts off with small contributions to principal which gradually increase throughout the life of the loan. To get a better look at how this works you can search online for an amortization spreadsheet that will let you plug in some numbers and see how the payments are applied. If you have any trouble finidng one, I'd be happy to send you something.

The nature of amortization becomes tricky when you are relating it to payment savings. Typically you will see less differnce in payment reduction per percentage point of interest on loans with smaller balances (most notably, less than $100K).

To properly gauge whether or not you can benefit from a refinance, consider a few things. First and foremost, how much money you want to save per month, at a minimum, to make refinancing worthwhile. Also consider how long you plan on owning this property for.

Interest-only programs are not for everyone, but the are a good solution for certain situations. Keep in mind, interest-only loans do not "force" you to only pay interest, they only "require" you to pay interest, you can always pay a little extra that will go straight to principal.

If you are only planning on owning the property for a short term, an interest only loan may be a good fit. Since nominal amounts of your payment are applied to principal in the first few years of an amortized loan, you might be able to save more per month than you would apply to principal in the first place.

As always, the best thing to do is determine your goals and present them to a mortgage consultant you trust to have them run some figures for you.

Hope this helps,
loanguy

I rarely see anyone on here from around here, glad to see you.
Like loanguy said, you'll have to do the math. However, know that with your payment amount, you probably aren't going to make much difference on your payment. If rolling the closing costs and pre-paids into your loan, you may in fact increase the note. Rates are not much better than what you have. Even if you go interest only, that will not make much difference in your note due to the loan amount.
If your principle balance is about $110,000 you'd have to drop your rate to about 5% to get even $100 savings in your principle/interest payment--and that's if you pay your settlement charges out of pocket. Even a higher rate, but interest only, just isn't realistic.
The refi alone probably will not be the answer to your problems. I'd first look at your overall spending, cut back, see where else you can find savings and then consider this. To make a significant difference, this would have to be part of an overall plan, alone it probably will not be the answer. Keep up with that note though, if it goes 30 you've drastically cut your options.

thanks for the advice, i really dont want to do interest only anyway. ill probably look somewhere else for cutting cost, ect. thanks.

one other question, i guess there is no way to get around paying PMI? i know once i pay off 20% they will drop it, but i didnt put anything down, so that will be awhile.

I assume since you are paying PMI, your loan to value is greater than 80%. If you are in a market that is appreciating, great, interest only will not hurt that. If you are in an area with a declining market, it could really hurt you (you increase the possibility that you may one day owe more than the house is worth).

As with all refinancing, there are costs involved. Many instituions will gladly roll them into your loan, BUT that will give you a higher loan to value.

Just a thought, if you think your loan to value is now less than 80% (appreciation and/or principal you have paid on the loan), see what it takes to remove PMI. It may require you to pay for an appraisal (find out what loan to value they require). If you can get PMI removed, that could knock off $50.00 or more a month.

I should have read your last.

PMI is based on the loan amount to the value of the home. The bank will not change the original loan to value (the loan amount to the price you paid) unless someone (not them) pays for an appraisal and can justify a new loan to value. Depending on appreciation, this may be a better option for you (get an idea of your homes value before paying for an appraisal, though, if you know it will not be close, I would not pay for it).

I see you also had no money down when you bought the house. Interest only would not be a good idea.

Nothing I say should be considered legal advice (or any other advice).

i am pretty sure my homes value has gone up. you kinda got me confused, let me see if i got this straight, if i owe 80% or less than what the home is WORTH, not what i originally bought it for, i can drop the PMI, correct?

It all depends on what your lender's policy is. When you first got the loan, it was more than likely 80% loan to value (LTV). In the few institutions I have dealt with, I have seen some require 80% LTV based on an approved appraisal to remove PMI, and I have seen some do 75% LTV based on an approved appraisal.

I have never heard of a bank removing PMI on their own (you have to initiate it). I would contact your financial institution and ask what LTV required to remove PMI. Once you have that information (and you know the principal left on the mortgage), you should be able to get a rough estimate of your home's worth (a few web sites will do it). If the rough estimates show you are close to meeting the LTV requirement, dig a little deeper (at that time it could start costing money).

Lenders will automatically drop PMI at the 78% mark, but you can request it at 80%. As for dropping it early, it depends on what they will allow. You may even have a MINIMUM amount of time that you must have the PMI, 12-24 months regardless. Contact your loan servicer to know for sure.

You can get some good information from a mortgage insurer's website. Here's Genworth's:
http://smartermi.genworth.com/
(that's not a "commercial" link, you can't buy direct from Genworth. Informative only)
There are some tips on dropping PMI and what to expect.

How long have you been in the house? Houses in our area typically appreciate at 6%/year.