* I want to increase my mortgage but I don’t want to pay PMI
Currently I have a 30-year fixed-rate mortgage of $148,000 at 6.75%. My monthly payment inclusive of property tax and home insurance premium is $1,276. I’m also paying $122 each month for PMI. My home’s appraised value is $183,600. When my loan is no longer subjected to PMI, I want to refinance my mortgage to take out $10,000 to $15,000. What will my monthly payment be like?
To get your answer, you need to first get some realistic data such as interest rates, points and closing costs. The following link gives you an excellent source of free quotes from established lenders, and you are not obligated to take out any loans from them:
Get Free Quotes for your analysis
(1) Your existing monthly loan payment
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Although you are paying 1,276 a month, your monthly loan payment is actually 960. The balance of 316 (= 1,276 less 960) comprises your property tax and home insurance premium.
(2) Your loan-to-value ratio
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Right now your loan-to-value is 80.6% (= 148,000 / 183,600 x 100%).
In 12 months’ time, your loan will be reduced by 11,519, ie 960 x 12, to 136,480 (= 148,000 less 11,519). Your then loan-to-value will be about 74% (= 136,480 / 183,600 x 100%), assuming your home’s appraised value will remain unchanged.
(3) How much cash will you be able to take out
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If you don’t want to pay PMI, your refinanced mortgage cannot exceed 80% of your appraised value, ie 80% x 183,600 = 146,880.
Let’s assume that you’ll refinance your mortgage one year later when your loan is reduced to 136,480, as shown in paragraph (2) above. The maximum amount of cash you can take out will be your refinanced mortgage (ie 146,880) less your loan balance in 12 months’ time (ie 136,480):
146,880 - 136,480 = 10,400.
(4) What will your new monthly payment be
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Set out below are some of free quotes I receive from a lender:
| Rate | Payment | APR | Lender fees & points |
Other closing costs |
Govt taxes & fees |
Total costs |
| 5.500% | $834 | 5.895% | $6,203 | $1,260 | $597 | $8,060 |
| 5.625% | $846 | 5.966% | $5,335 | $1,260 | $597 | $7,192 |
| 5.750% | $857 | 6.043% | $4,573 | $1,260 | $597 | $6,430 |
| 6.250% | $904 | 6.367% | $1,789 | $1,260 | $597 | $3,646 |
| 6.500% | $928 | 6.539% | $594 | $1,260 | $597 | $2,451 |
| 6.750% | $953 | 6.750% | $-415 | $1,260 | $597 | $1,442 |
Note:
(i) Other closing costs include fees of closing attorney/agent, appraiser, title insurance, and credit reporting.
(ii) Total costs = Lender fees & points + Other closing costs + Govt taxes & fees
(iii) Homeowner’s insurance and property taxes are omitted
Assumption
The above free quotes are given based on the following assumptions:
(a) Loan amount = $146,880
(b) Property value =$183,600
(c) Propery type = single
(d) Product = 30 year fixed
(e) Property state = Georgia
(f) Loan purpose = Refinance with cashout
(g) You have no second mortgage/home equity lines
(h) Your current credit rating = excellent
Any of the 6 options in the table above will give you a monthly payment less than your current monthly payment of 960 (see paragraph 1 above).
The 5.500% option gives you the largest cash savings because the monthly payment is the lowest, ie 834. But this option requires the largest cash outlay — the total costs is 8,060. This will reduce your intended cash takeout of 10,400 (see paragraph 3 above) to only 2,340 (= 10,400 less 8,060). This option will thus defeat your purpose.
If you want to maximize your cash takeout, the 6.750% is your option. Your monthly payment savings will be minimal because your new monthly payment (953) is almost equal to your current monthly payment (960) , but your cash takeout will be maximized at 8,543 (= 10,400 - 1,260 - 597). Will this be acceptable to you, since your objective is to take between 10,000 and 15,000 cash out?
Summary
There is no general answer as to what your revised monthly payment will be after you refinance your mortgage. Your lender’s offers will determine your monthly payment, and also whether or not you’ll be able to meet your objective of taking out 10,000 - 15,000 cash.
You must never make your decision based on only qualitative considerations. You must always work out the numbers and analyze them. To get reliable results, you should use realistic data. You should get free quotes from lenders. There are many lenders who are keen to provide you with the relevant information. Try this good resource:
Get Free Low quotes for your analysis
Be sure that these lenders tell you their fees, points, other third parties’ fees, and all other attendant costs. Ask them for their APR (annual percentage rate) because this is the real cost of your loan. Look at the APRs in the table above. Each APR is higher than the corresponding interest rate because APRs take into account your interest costs, the lender’s fees and points. Thus APRs are more accurate measures of your overall loan cost.
Using the data in the table above, it’s clear that you can:
(a) take cash out from refinancing your mortgage, and
(b) keep the monthly payment the same as, or less than, your current monthly payment, and
(c) avoid paying PMI.
The only question remaining is: are you satisfied with less than 10,000 cash takeout?
