Would refinancing be a bad idea for us?

[Deleted]

Right now we have an FHA loan at 4.25%. Based on comps, we are at about 82% loan to home value. We are paying PMI. I was talking with a mortgage broker who said he can refinance us in to another FHA, lowering our percentage to 3.75%, the around $6K closing costs would get rolled in to the loan and we'd get $6k in hand. We would not get out from under PMI, and the refinance would be for more than we owe now and only save us about $100/mth.

However, we'd be able to take that $6K cash to pay off a credit card (right now we're paying $1k/mth towards this card). We'd then be able to take that $1k that we're currently paying, plus the $100mth savings, plus the $400/mth we're currently paying, and then start paying a total of about $1500/mth to another card that has an $18K balance, thus paying it off in about 14-15 months tops. 

I don't think this is a good plan, but I wanted to get some thoughts from you all. I don't like the idea of taking on more debt to pay off debt, but maybe I'm missing something? We are in a decent amount of debt and I'm really struggling to come up with a plan to pay it all off. Essentially the above would just be speeding up our Snowball, but at what cost? 

[njohnson1972]

How much more would you need to get to 80% loan to home value?

[Deleted]

Aug 30, 2019 10:04:47 GMT -5 njohnson1972 said:

How much more would you need to get to 80% loan to home value?

So, right now we owe $248K. Zillow says we're at any where between $280-$320K, which is not helpful. I'd say based on recent sales, we're probably closer to $305K. At $310K we'd be at 80%.

Values in our area seem to be increasing pretty significantly. We paid $272K in 2015. It was sold in 2013 for $250K.

[jinkies]

Don't do this. You are paying $6,000 dollars in closing costs to save $100/month. This is new debt that you don't need to take on, even if it doesn't feel like it because you are rolling it into a 30-year mortgage.

Yes, you would be shifting money around so that you can pay off other debt, but if I'm understanding this, you would have that credit card paid off within 6 months regardless, right?

I also don't understand how you get $6k in cash by rolling closing costs into the mortgage, but maybe I'm being slow on that one.

[flygirl]

This is a bad idea. In order to get $6k in cash, they have to increase your mortgage balance plus you’re paying 6K in closing costs, just to move debt to your home. I’d keep plugging away with your $1K a month payment and once your credit card debt is paid off, you’ll likely be at a point where your PMI will drop off and then you’ll feel real relief. Just keep trying to throw everything you can at your debt!

[Deleted]

Thanks all. You are just confirming what H and I already discussed about this. The broker is really pushing the refi, but in essence, we'd be adding $12K to our mortgage pushing us even further from the point of being able to refinance to get rid of the PMI (we're in an FHA loan, so PMI doesn't just drop off, we'd have to refinance no matter what).

Right now my H has a credit score of 705. Currently he has some late mortgage payments on there from his house with his ex-wife (she got far behind on the mortgage when they were divorcing even though he was giving her money every month to pay it) and of his two credit cards, one is within a few hundred dollars of the limit and the other is at about 60% of the limit (that's the one we should have paid off in a few months).

We're not opposed to doing a HELOC at this point but I don't really know that much about it and if it would even be worth it. We have a lot of consumer debt and I'm completely overwhelmed

[Cappy]

Aug 30, 2019 10:37:54 GMT -5 flygirl said:

This is a bad idea. In order to get $6k in cash, they have to increase your mortgage balance plus you’re paying 6K in closing costs, just to move debt to your home. I’d keep plugging away with your $1K a month payment and once your credit card debt is paid off, you’ll likely be at a point where your PMI will drop off and then you’ll feel real relief. Just keep trying to throw everything you can at your debt!

This! Pay off the card then revisit when you think you have your LTV where you need it to be to drop that PMI. I would not be surprised to see rates continue to drop so you may be surprised at how things can shake out for you.

[freshsqueezed]

Bad idea. Also I’m curious is the 6k in closing costs standard around you? We are nowhere near that so I just thought I’d mention if you do revisit to look around.

[jinkies]

I know it will suck for the next few months, but once that first card is paid off, it will give you some breathing room in your budget, and you can start tackling the card with bigger debt.

The fact that you are able to pay so much each month toward getting rid of that debt is a big step. It sounds like you are heading in a really good direction, even if it is overwhelming sometimes.

I think that it is generally not recommended to pay off credit cards with a heloc, because you are putting your home in jeopardy for consumer debt.

[njohnson1972]

Would you be able to qualify for a loan just based on your income? Because if your credit is good, you may be able to get a better rate than doing the loan jointly.

I think the FHA part of the loan makes this very expensive too. You have to pay 1.75% upfront in mortgage insurance, so $5,300, which is getting rolled into the new loan. Plus monthly mortgage insurance, which I am guessing is around $215/month. And the mortgage insurance doesn't go away for a minimum of 11 years, even if you get to under 78% LTV.

If you can't refinance now, I would definitely revisit the idea as soon as you get to 80% LTV and look at conventional loans. You would save a good bit just getting rid of mortgage insurance.

[njohnson1972]

Aug 30, 2019 11:22:19 GMT -5 freshsqueezed said:

Bad idea. Also I’m curious is the 6k in closing costs standard around you? We are nowhere near that so I just thought I’d mention if you do revisit to look around.

Closing costs are crazy high were I am.  We pay Transfer Taxes to the county/city, plus transfer tax for the deed and transfer tax for the mortgage.  On $350,000 mortgage, I will be paying $5,600 in transfer taxes.  That doesn't include any prepaids or title insurance or lender fees.

[sadlebred]

As others have said, this is not a good idea. You should never refi a house to pay off CC debt. Can you transfer the CC debt to a 0% interest card? Or maybe take out a personal loan at a lower interest rate?

[freshsqueezed]

Aug 30, 2019 11:50:42 GMT -5 njohnson1972 said:

Aug 30, 2019 11:22:19 GMT -5 freshsqueezed said:

Bad idea. Also I’m curious is the 6k in closing costs standard around you? We are nowhere near that so I just thought I’d mention if you do revisit to look around.

Closing costs are crazy high were I am.  We pay Transfer Taxes to the county/city, plus transfer tax for the deed and transfer tax for the mortgage.  On $350,000 mortgage, I will be paying $5,600 in transfer taxes.  That doesn't include any prepaids or title insurance or lender fees.

Ok thanks. I was wondering if some areas are just way higher.

[pinkalicious]

This sounds so crazy, but I’m a realtor. Our company has a mortgage division, and you can only use them if you are involved in a deal with an agent from our brokerage, or a re-fi as a referral from one of our agents. One of the best things about it is that their are no loan origination fees and some other fees, plus they give you $1000 closing cost credit if the home value is over $150k.
DH and I are in the middle of our own refinance with them (we aren’t getting rid of PMI, but are reducing our monthly payment $400/month). The rate we were given is 1/2 point lower than another mortgage broker I also talked to. Our estimated closing costs are like $1200, and with the $1000 credit, we only have to bring $200 to close.
That being said, if you are at all interested I’d be happy to set you up as a referral. I get nothing out of it, other than helping you.

[Susie]

I wouldn't do it.  It sounds like you would effectively be amortizing the credit card debt over 30 years, albeit at a better rate.  No thanks.  I also wouldn't refi into an FHA loan when you are so close to 80% LTV.  FHA loans come with lifetime MIP now.  If you wait to get just 2% more LTV, you could do a no-PMI conventional loan and save yourself the MIP premiums for the next couple decades.

We are in the middle of refi'ing our house for the 2nd time since we bought in 2008.  My rule of thumb is that I want to get at least a 1% interest rate drop for it to be worth doing.  We bought at 6.125% (FHA), refi'ed to 4.375% FHA, and are now refi'ing again to 3.25% for 20 years (instead of 30), conventional.  We are dropping MIP, lowering the rate, shortening the term remaining, and lowering our monthly payment a bit.