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Question for the Money Doctors

Question submitted on Sep 25, 2012.

Question

We have a $600K mortgage at 5% interest rate. We don''t have any equity in our home as home prices have decreased so we are also paying PMI of ~$250 per month. To refinance, it seems that interest rates will go down but PMI will go up and PMI will not be tax deductible. We get a lot of letters for refinancing but wasn''t sure if this is the best option? If not, what are other options? Also, our monthly mortgage payment (Principal, interest, PMI, real estate insurance and property tax) is above 30% of our net income - should we hold the house or try to downsize (with a loss)?

Answer

I am not a home mortgage expert.  However, in consulting with a colleague of mine who is, he recommends the following.

30% is on the upper end of what many lenders will allow for PITI payment on a home.  So, if you truly believe that your home is too expensive (and the 30% supports this thought), then you should try to sell the property, pay off the debt and get a fresh start in an appropriately priced home. 

Another option is the Home Affordable Refi Program available.  Different states have different rules, loan limits, PMI regulations and Loan To Value restrictions so one may be available. As long as you are not too upside down on the property, this could be an option.

Lastly, your situation is complicated and this answer is meant to give you some options.  There are likely other options available.  A specific recommendation would require much more discussion, fact gathering and research.  


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