Bait & Trap?

[Vanilla]

Background: we have a 1st & 2nd mortgage with 2 different banks. With the plunge of housing price, I guess (with some comparable sales in the area) our total combined loan should be about 90% of value.

Okay, recently, we have been receiving a letter from the 1st mortgage every 2 weeks, offering us to re-finance (up to 105% of appraise value, no costs whatsoever) to a reduced fixed 30-years 5.25 % APR or fixed 15-years 4.5% APR, w/ a table showing how much interest we would save if we choose the 15 years. On top of that, a loan officer from that bank left us 2 messages a day. We read all the fine prints, I thought it could be a good idea to re-fi, since we still have about 19 years to pay off, if we re-fi the payment will be $120 more monthly & shorten 4 years payment.

Suddenly, DH pointed out a short statement (in very fine print), the bank could charge us 'mortgage insurance' if the loan is more than 80% of the appraised value. DH said that this could be another way the bank try to add that extra charge, bait & trap.

@#$%@# to the Bank.

We decide not to re-fi.

[Russ]

That sounds like PMI insurance. You can learn more here > Private Mortgage Insurance (PMI)

You should check out some on line calculators and determine if a re-fi would benefit you.

[monkeywrangler71]

I don't know about the US, but in Canada it is against the law for a bank to mortgage more than 80% of the home's value without insurance. That clause is standard and legally required.

[Vanilla]

Thanks.
At this time, we don't have PMI, because at the time when we got the 2nd, the total combine loan to value was 70%, no PMI was required. But it's different now, if we do a re-fi, then the bank(s) can do an appraisal, & because the loan to value would be about 90%, they can legally make us purchase the PMI.

Our plan is after paying off all the credit cards, we are going to pay down the mortgage. I played around with different payments scenarios in the quickbook, depending on how aggressive we are, we can shorten the term to 12-15 years (from 19 years), so I think that balance it out for not taking a lower rate re-fi.

[Saule]

Some banks will assess you a penalty for paying off your mortgage early, but usually you can tack a little extra onto your payment without trouble - just check your statements, make sure the extra is applied to principal.

[2ndGenGranola]

Suddenly, DH pointed out a short statement (in very fine print), the bank could charge us 'mortgage insurance' if the loan is more than 80% of the appraised value. DH said that this could be another way the bank try to add that extra charge, bait & trap.

@#$%@# to the Bank.

We decide not to re-fi.

I agree with the others who have mentioned PMI. The bank is not out to bait and trap you. It is standard.

[mek42]

Do your own due diligence, but I recently read that PMI is not charged on 15 year mortgages when the mortgage balance is less than 89.90% of the value. So if your numbers match the bank numbers, you might only be on the PMI hook for a year.

Also, our house was valued at purchase at about 85k and we pay $30/month PMI.

You might save more money with lower interest than pay on PMI and the PMI might go away very quickly.

Also, don't forget to add in any possible closing costs to your equation.

Good luck!

[Greebo]

You should do the math before you make a final decision. The PMI goes away once you have enough equity, so you can get an estimate of the total PMI cost vs. the total savings from a reduced interest rate.

[Vanilla]

Finally have time to read all your feedback, thank you so much. I just talked to DH about your opinions. We shall do some more research on this matter before making a final decision.

Thanks, you guys are the bests.