Rising Mortgage Rates: Refinance, Extend Florida Home Loan or Do Nothing?

As Florida mortgage rates rise slightly, borrowers are faced with three options:

1. Extend the ARM
2. Refinance
3. Do nothing

First, would your condo appraise at a price that would allow you to stop paying PMI? If your condo is appraised at a price where the outstanding loan balance is 80 percent or less of the appraisal, you should be able to stop paying PMI if you refinance, or perhaps even without refinancing.

What’s the new rate on the adjustable-rate Florida mortgage if you take advantage of the option?

A typical option extends the fixed-rate feature for three more years, to January 2011. If the new rate is - for example - 4.875, then you need to compare the expected interest rate savings from having this low rate against continuing to make PMI payments on the existing loan.

PMI doesn’t last forever. It just lasts until your Florida mortgage loan balance falls to a point where the lender has 78 percent loan-to-value, based on the original selling price or original appraised value of the house (whichever is lower). The lender doesn’t have to consider the home’s appreciated value in deciding to drop the PMI policy.

If, however, your Florida mortgage loan is subject to the more liberal Fannie Mae and Freddie Mac guidelines; then your home’s appreciation can factor in to when you can drop the PMI policy and premiums.

If your loan officer is offering you an extension at 4.875 percent, and things look pretty good to get out from under PMI in the next year or two without refinancing, then it’s a fairly easy choice to pay the $1,000 and lock in that low rate until 2011.

If the interest rate on the extension is closer to market rates on a new fixed-rate mortgage, say 6.5 percent, then you need to weigh the possibility that you can get out from under PMI against the higher interest rates over the next two years and the closing costs of the loan.

If you’re currently paying $221 per month in PMI and it will cost you $6,000 in closing costs to Florida mortgage refinance into a new fixed-rate mortgage, then it takes 2¼ years in the new mortgage to offset the closing costs by eliminating PMI, but that ignores any difference in interest rates between the existing mortgage and the new mortgage.