When should you refi a low FHA mortgage rate?

Beautiful luxury home exterior at twilightMany homeowners are hanging onto very low mortgage rates when they should perhaps consider refinancing the mortgage for a higher rate. What???

It’s true! If you have an FHA mortgage in the mid to high 3’s it may make sense refi to reduce your payment. If you factor in the mortgage insurance included in your monthly mortgage payment, your payment may be higher than what it could be with current interest rates.

For example, recently I reviewed a clients FHA mortgage that she obtained from us about seven years ago. Her current interest rate is 3.750% with current principal and interest of $1,344.15 and mortgage insurance of $131.90 for a total of $1,476.04.

I prepared a scenario for her based on paying off the current FHA mortgage for a conventional mortgage without private mortgage insurance. Based on current rates (as of 11:30 am March 14, 2019), loan amount of $258,000, 30 year conventional mortgage, credit scores between 660 to 850 with a loan to value 60% or lower, the home owner can refinance with a rate of 4.250% priced with 0.713 points (APR 4.515%).  The principal and interest payment of $1,269.20 is $206.84 lower than the current payment. This scenario will take about two years to break even on the refi so if they intend to keep the mortgage for longer than two years, then refinancing probably makes sense!

Although a rate in the 4’s may not sound as sexy having a rate in the 3’s. Dumping mortgage insurance and reducing your total monthly mortgage payment may be a smart move IF you’ll be keeping the home long enough to where the cost of the refi pencils out.

NOTE: Mortgage rates quoted are subject to change and credit approval.

I’m happy to review your scenario for you to see refinancing makes sense for your personal scenario. Click here for a no-hassle mortgage rate quote for your home located anywhere in Washington state.

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