Shòúld Î pull money out of my EF to refi?

[ambellamy]

I bought my condo in september of 2009 for 120,000 with an FHA loan... since then the government has changed the rules on FHA mortgages to the point where I can't refinance because any savings I'd get would be eaten up by the new higher fees associated with the mortgage (so re-setting my mortgage to 30 years at a lower rate will only save me like $25 a month and less money would be going to principle... so its not smart).

and sadly I bought in September of 2009 so I was 3 months too late to qualify for the new refinance programs that lowers the monthly fees for loans purchased before june 2009...

So here's the thing, I have a 780 credit score and I was talking to a mortgage rep the other day and they told me if I kick the FHA loan to the curb, I could pay down my mortgage balance a bit and do a conventional 20 year mortgage at 4.25% for the same payment i'm making right now. It wouldn't help us monthly, but it would kill 7 years off our loan, we would be paying more towards principle, and our PMI would be gone faster than any MIP payments we have left.

Only problem is we would have to pull the money out of our emergency fund to pay the balance down.

If our home is worth what we paid for it, its only $3,600 that we would have to pull out of savings, which still leaves our EF pretty good... but if the value has dropped down to $115,000 we would have to pull $8K out of our $12,500 Emergency fund.

But by doing that, it would erase 10 years off our mortgage, give us a lower rate, and keep the monthly payments the same...

So do we take the leap and do it?

Right now i'm the only one working (the hubby got laid off at the beginning of the year and we aren't sure if he will be getting any more money from Unemployment--- most of the UE money we put in savings and just cut our lifestyle to live on just my earnings) and we have no other debt.

If we are worried about dinging our savings, would it be smart to not fully fund my Roth IRA this year and take some of the money from that to use to pay it down?

I'm 26 and our current rate is 5.25%

[Deleted]

I would not refi into a 20 year mortgage at 4.25%. That is too high for the market today.


I would refi into a 30 year fixed at 3.75%, though.

[Sam_2.0]

I would agree with Archie, 4.25% seems pretty high for a 20 yr.

Do you plan to stay in this area for awhile? Paying off a home seems to only make sense if you are planning to stay in it. Do you have any other debts?

[Peace77]

If you pulled the money out of your EF, how many months worth of expenses would remain?

[ambellamy]

It's one of those "no cost" mortgages so the rate is higher because I don't pay for anything except the appraisal... Unless they are just screwing me over... which could be the case.

and Yes, we plan to stay here for a good 5+ more years before upgrading to a home. Its 15 mins from my work on surface streets and in a good area.

Our bare- bones budget is $1900 a month so if we only have to pull out the $3.5k we'd have 4.66 months left.

If we pull out 8k we have 2.3 months in the emergency fund.

But that I don't include the 2k "checking account padding" I leave in my account for those "just in-case" moments... and I have 500 in savings bonds. If I add that into the EF, its $15,000 and if we pull 8k from that we have 3.68 months

[Sam_2.0]

Well, its "no cost", but they get you on the rate, so its not really free. If you plan to move in five years I wouldn't do it. Can you do a traditional refi and get a better rate? Run the numbers that way and see what your break even point is.

[ambellamy]

I called a few other places to ask about 30, 25, and 20 year mortgages so I should be hearing from those people soon.

Churchhill mortgage
Chase Bank

and then BOFA where my mortgage is now....

I have a 784 credit score so I should qualify for a GREAT rate.

[Peace77]

Do NOT pull money out of your EF to have the same payment. I'd consider it if your payment was lower and you could easily and quickly replace the EF funds.