Real Estate and Home Mortgages - Want to pay off second (PMI) mortgage need suggestions

When I bought my house in 2004 like most others I took out a second mortgage to avoid PMI . Now I Want to pay off my second "interest only mortgage" of $25,000 or somehow combine it with my main mortgage of $218,000. Looking on zillow.com my house is suggested to be worth $305,000.

I really need suggestions on how to go about this.

Thanks, Steven

anyone have any suggestions??

By "payoff" I take it you mean, "combine with first mortgage". First thing I would do is ask a Realtor for a quick competitive market analysis to see if it's worthwhile going forward. Zillow is notoriously inaccurate so I would not count on your house really being worth $305K.

Come to think of, don't do anything. If the house is worth $305, you still wouldn't be able to combine them as you owe a total of $243K. Don't you have to be below 78%?

First check and make sure there's no prepayment penalty on your second. If not just start paying extra on the loan and pay if off.

Sorry for rambling, got a lot on my mind tonight.

frank

The first question to ask when considering a refi is "how much longer am I going to be in this house?". If just a year, you definitely need a shorter term loan. As short as possible. Going on 30 years again will probably cost you money if moving in the next 5 years, or even more.

Since the 2nd was used in purchasing the house, it wasn't an equity line you got later on for other purposes, you can consider this a rate & term refi *IF* you have not taken any draws from it if it was set up as a HELOC. Some are set up that way, and getting more cash later can kick this over to being a cash out refi, where other rules apply.

Personally, if it comes to the value of the house, I wouldn't trust a website OR a realtor. Realtors don't know anything other than bedrooms/bathrooms and sq ft. There's more to an appraisal than that, much more. That's why they're realtors, not appraisers. They can get close, but not an actual value.

If you do this, please refi onto a shorter term than you are on now. If you're on 30 years and refi again onto 30 years, you cost yourself a lot of money. Pay anything you can out of pocket rather than rolling into the loan.

To avoid PMI, you need to be borrowing no more than 80% (read: not 80.01%). However, if you're in the 80.01- 85% range, PMI will be at a pretty low rate. 85.01-90% it's higher, and so on. You may find the 80-85% range liveable, knowing that it should drop off in a couple of years.

Consider keeping what you have. It may simply be cheaper and easier to just make principle payments on your interest only 2nd. Keep in mind you aren't actually paying off a debt with the refi, just changing the terms. The money you owe is still there. Make sure the terms are in your favor in the long run, not the lenders. ;)

Thanks so much for the info.. This stuff can get really confusing!

To fill you in a little bit, I do plan on living here at least five more years.
You are correct in assuming that I have not taking any extra money out of the second loan.

I guess my thoughts are trying to get the interest only loan which is I believe to be at 11 percent on to my main principle and interest loan that is at 5.8 percent.

Is this even possible at the same time keeping the same 5.8 interest rate?


Whats the next step down from a 30 year?

Rates are higher than 5.8% now, for sure, but nothing crazy.
Here is what I would do:
Pull your original loan papers, which should include some sort of amortization. If not, there are calculators in Excel, or on the internet that can help you with this. Your loan officer may be able to help you with it too (I do them frequently).

You want the amortization correctly dated, starting at your closing date. You need the correct term, rate and loan amount in there. Run that.

You say you'll likely live in the house another 5 years, so what is the principle balance 5 years from now? Example: $100,000

Sounds like it's hard to get yourself to pay down the interest only loan, so use the balance you have now. Example: $20,000

Look now at the new refinance loan that combines these two. Run an amortization on that. In 5 years, what do you owe? How much are you saving each month, if anything?
Take your monthly savings, x60= savings from payment.
If your balance is < $120,000 add that too.
That's your savings from your refinance.
If you go with 30 years, you'll probably see that you're LOSING money by doing this (just a guess, do the math to know). If you cut to 25 years, you ought to save some. The catch is that you have a low interest only payment now, so you might not save much on your monthly payment.

This is the correct way to approach a refi. Look at the long term balances 8as well as* the monthly savings. Saving monthly doesn't do you any good if it takes you 10 years to TRULY save anything.

Do the math, that will tell you if this is a good idea. Remember to cut the term.

Thanks for the detailed breakdown! As soon as I get a little extra time I'll sit down and figure out if I will be saving myself money in the end. I see what your saying though .. another 30 year is most likely not the best of ideas.