We’ve got some exciting news: We’ve applied for a refinance!
## What’s New
It’s been a while since my last update, and a lot of good things have happened since Chapter 3:
– **New HARP LTV Guidelines:** As of December 2011, the Home Affordable Refinance Program (HARP) has updated its rules. Now, you can qualify for a HARP refinance with a loan-to-value (LTV) ratio of up to 125% of your property’s current market value. However, if your LTV ratio is 100% or higher, the mortgage interest rates offered won’t be as favorable as the current market rates.
– **New HARP PMI Rules:** HARP now requires that if you have Private Mortgage Insurance (PMI), you need to maintain the same amount of coverage for a refinance. This means you’ll essentially pay the same amount for PMI as you do now—in my case, about $90 per month. While this may sound negative, it’s actually reassuring. I was worried that a refinance might lead to a lower home appraisal and higher PMI payments, but now the $90 is the worst-case scenario.
– **Appraisal Hope:** My neighbors, who have the same model house as I do, had their home appraised at $160K. This is encouraging because if my house appraises somewhere between that value and its State Equalized Value of $134K, it would be more than what I still owe (around $139K).
– **Extra Money:** Thanks to a good year at work, my profit-sharing check combined with my tax refund and savings should provide a buffer to reduce my LTV to 100% or less, ensuring a better interest rate. After running the numbers, I realized that putting extra money towards my mortgage is the smartest move for reducing years of interest and payments.
## Taking a Leap of Faith
Enough talking—time to take action! On Friday, January 27, 2012, I met with a local private mortgage company and filled out an application, the same company my neighbors used. Here’s the loan we’re applying for:
– **A 20-year fixed rate at 3.75% with 0.375 discount points**
This refinance would save me a significant amount of money. Here’s a quick summary:
Saving $100 per month, cutting 1.3 years of payments, and reducing overall interest by about $42K seems worth it. Needless to say, I’m thrilled with these terms.
## What Now?
With the application signed, we now have to wait for our home appraisal results. Once something new happens with the application or appraisal, I’ll keep you updated.
If you want to calculate your own savings, use the Microsoft Excel spreadsheet I created to make the results table above.
Stay tuned for the next chapter!
