*Originally published on December 13th, 2017
This is a Christmas story about a mortgage refinance for a very nice family down in Monroe, Utah, who bought their home 3 years ago using a Utah Housing loan.
If you’re not familiar with Utah Housing Corporation, it promotes homeownership by offering 100% financing in the form of a first and second mortgage. The second mortgage will include your required down payment and closing costs. Sounds like a good deal, right?
Sort of. You may want to read my post about The Hidden Cost of a Utah Housing Mortgage Loan.
A Utah Housing mortgage loan is great if it’s the only option you have. The interest rates are quite a bit higher than what you would get on a normal FHA or Conventional loan. However, the biggest issue in the long run is that they don’t subordinate the second mortgage to any other lender. This means that as long as that second mortgage has a balance (and you can’t afford to pay it off) you are stuck not being able to refinance through anyone else but Utah Housing. Did I mention Utah Housing mortgage loans have higher/pricier interest rates? Good, you get my point.
Back to our refinance story.
My borrowers actually looked into refinancing their mortgage loan back in June, and were told they couldn’t. The loan officer didn’t look beyond that $7,000+ second mortgage balance that would not subordinate. My borrower decided to give it another try, found my website online, and reached out to ask for a second opinion.
I figured he has owned this home for 3 years now, so he must have equity in it by now.
I also know my guidelines: a second mortgage taken out at the same time with a first is called a “purchase second”. This means that the second mortgage can be paid off when doing a rate and term refinance without the transaction being considered a cash-out. Cash-out transactions require more equity in the home, and would be a deal breaker in this situation.
I only needed this family to have a minimum of 3% equity in their home to save them money on a refinance. So we started a refinance application, crossing our fingers and toes. The “gamble” paid off.
When the appraisal report came back, the value of the property had increased by 23%. That’s an average of a little over 7% per year – with no significant improvements to the home since purchasing it.
- Best part, besides the significantly lower interest rate? Private mortgage insurance was no longer required.
- Second best part? A rate and term refinance can have incidental cash back at closing not to exceed $2,000. A little extra Christmas cash never hurt anyone.
- Third best part? The first mortgage payment will be due February 1st, so my borrowers won’t need to make a December or a January mortgage payment. That’s two mortgage payments that can go into a savings account for a rainy day, or towards paying down debt. Or both.
Was Santa ever that generous to you?
Moral of the story?
Using an average increase in home values of 7% per year, estimate how much equity you now have. Or reach out to me, and I can pull up a HouseCanary valuation, or put you in contact with a real estate agent that can provide your with a CMA (Comparative Market Analysis).
If you have 20% equity or are close to it, send me an email at [email protected]. I’ll run the numbers to see if a refinance makes sense for you.
When will a refinance not benefit you?
If your interest rate is in the low 3s, a refinance right now will probably not be worth it for you.
Even if your current loan is an FHA loan, and you’re paying that monthly mortgage insurance for the life of the loan. Any savings gained by eliminating the FHA insurance are going to be eaten up by the higher interest rate on a Conventional loan.
Just because you have a Utah Housing loan doesn’t mean you’re stuck with it. And just because one loan officer tells you something doesn’t make it true. Always ask for a second opinion, especially if you know you’ve been good 😀
You can always email me your questions at [email protected] or use my secure online application to get an application started.
Happy Holidays!
