Posted by Today’s Real Estate/Mortgage Rate markets offer up a great opportunity for previous FHA home-buyers. Arizona mortgage rates are low, Phoenix area home values seem to be on the rise AND mortgage insurance products are more flexible than they have been in a long time. What does mortgage insurance have to do with the price of tea in China? Believe it or not mortgage insurance plays a HUGE role in a home buyer’s ability to leverage and create the ideal mortgage plan.
Let’s look at an FHA buyer from a year ago. Picture a home buyer that used an FHA loan to purchase a $200,000 home in Tempe. They could have had the following mortgage rate and monthly payment:
FHA Buyer
Mortgage Rate: 4.25%
Monthly Payment: $1,426 (includes $300 total for insurance and taxes + $176 for monthly mortgage insurance)
*based on 4.91% APR
This monthly payment includes mortgage insurance based on a 1.1% per year factor (totals $176 per month). Fast forward to today. This borrower’s home may very likely have 5% equity based on rising home prices in Arizona. Why is 5% equity important? 5% is a critical equity position when considering Conventional mortgage options and being able to consider Conventional home loan options opens the door to more affordable mortgage insurance alternatives. Most Conventional mortgage options require 5% equity (3% equity Conventional mortgages are also available)
This same homeowner could now consider refinancing into a Conventional mortgage to lighten their monthly payment. Here is how/why. The mortgage insurance market now allows Phoenix mortgage lenders to offer financed mortgage insurance and lender paid mortgage insurance – 2 powerful alternatives to borrower paid monthly mortgage insurance. Each of these options will help this homeowner put more money in their pocket each month. As a reminder – mortgage insurance is a premium that a borrower must pay if they put less than 20% down OR when a homeowner that is refinancing has less than 20% equity in their home.
* Mortgage insurance costs vary from loan type to loan type and from borrower to borrower*
A Big Improvement on your Mortgage Insurance Payment
Let’s assume the FHA buyer above is able to get their house to appraise for $208,000. They now have at least 5% equity. Their AZ Mortgage Company can help them transition to a Conventional loan with and put their mortgage payment on a financial diet so less of their cash gets eaten every month! Here is how it would look:
Conventional Refi
Mortgage Rate: 3.75% (*rates fluctuate daily*)
Monthly Payment: $1,198 (includes $300 total for taxes and insurance – no monthly mortgage insurance)
based on 3.98% APR
As a result of improved interest rates and a slight uptick in value this Phoenix area homeowner can now knock off $228 of their monthly payment. The majority of that savings is coming directly from the elimination of their monthly mortgage insurance payment. Sometimes improving your mortgage plan through refinancing is not just about lowering your mortgage rate. Finding smarter/better ways to pay mortgage insurance can also make a huge difference with regard to your monthly payment.
Please call or email me today if you have any questions.
By Jeremy House