FHA Streamline 30 to 15 year, make sense?

chazman113 · Joined: 08 Jan 2009 Posts: 7

I recently was talking with my loan officer about paying down my FHA to get rid of the mortgage insurance. I'm already comfortable paying $500 extra a month on my loan. She said I could use an FHA Streamline to reduce my term to 15 years and it would also get rid of my extra $80 a month in mortgage insurance. The interest rate is around 4.5%. It seems my payment would only jump about $350 and cut my term in half. I dont see how I could lose, am I missing something? Also, will all the interest I've paid ($5k, 7 months) on my current FHA go essentially to nothing other than the bank's pocket?

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

They key here is what would the difference in your rate be? You could also make the additional payments and pay it all off in 15 yrs. I think your loan officer MAY just want to earn a commission.

chazman113 · Joined: 08 Jan 2009 Posts: 7

The new rate will be 4.5% the old is 5%

The payment difference is:

Current:
$1120

15 Year:
$1340

That is only $320 difference to cut it in half! The mortgage insurance goes away, thats key, otherwise it would be $400. And I will be paying that MI for years, thats about a $9000 savings. Also, I can itemize deduct almost nothing else from taxes, so I'm real close to the standard deduction as it is, I dont think taxes are that big a factor.

The closing costs to refinance are only about $1500, and my only other gripe is that the $5k in interest I've paid so far goes esentially to nothing, but big picture I will save about $100k and pay off in half the time. Sound right?

m2c · Joined: 03 Aug 2005 Posts: 937

Sounds a little thin (rate differance) to me. You didn't give current balance and P&I, but you may wish to ask LO what the remaining term of your current loan would be if you paid an extra $220 per month (indicated differance between the 15 and 30-year payment) to principal. Could be you'd be close to a 15-year term without going to a new loan

EricJ · Joined: 09 Jan 2009 Posts: 321 Location: New Jersey

chaz

It is only a half percent. Do this, calculate what your new payment would be if you DID go with this 15 year. Then just make that payment on THIS LOAN and get rid of that PMI. End of story. Plus, if you have an issue with your job, then your minimum required payment is still lower. you dont HAVE TO make that high payment every month. It gives you flexibility.

You can find a calculator to determine your payments here.. Free Mortgage Calculator

chazman113 · Joined: 08 Jan 2009 Posts: 7

I actually meant new payment is $1440, so it is $320 difference.

Doing the calculations on bankrates calculator, looks like the 15 year option would finish it 2 years earlier, in addition the payment would be $80 less for about 5-6 years because I would not reach 78% Loan-to-value and have to pay mortgage insurance.

chazman113 · Joined: 08 Jan 2009 Posts: 7

eric...

This appears to be the breakdown in your scenario....

Adding $410 ( AND $80 MI for 4.5 years)
Ends in 10/24
Total Payment: $1590 for first 4.5 years, $1510 for the remaining

15 Year Plan:
$1440

That is a savings of about 8100 for 4.5 years and 7560 for the remaining. So I guess the question is, $15,600 dolars savings worth the "insecurity" of $300-400 dollars a month extra

chazman113 · Joined: 08 Jan 2009 Posts: 7

Wrong math:

$1530 first 4.5 then $1450 10.5 years

so savings of $4320.... that is less compelling.....

BUT from what my mortgage agent has told me, it doesn't reammortize with extra payments like bankrate's calculator does, so my initial added amount could be invalid.