Real estate
Youmay have to pay for mortgage insurance.
Boardcertified real estate lawyer Gary M. Singer writes about the housing market at Sun Sentinel. business/ realestate each Friday. To ask him a question, email him at gary@garysingerlaw.com, or go to SunSentinel.com/askpro.
Q: We bought our home two years ago with an FHA loan and an interest rate of 4.5 percent. As part of our monthly mortgage payment, we are paying mortgage insurance. What is that? And I have been receiving offers in the mail to refinance at a better interest rate to lower our payments. Is this something we should do?— Adoria
A: In many cases, homebuyers get Federal Housing Administration mortgages because they’re relatively easy to qualify for and require down payments as low as 3.5 percent of the purchase price.
But because this leaves very little equity in the home to protect the lender in case you can’t make the payments, you will be required to pay mortgage insurance in addition to your regular payment each month.
In a typical mortgage, this costs about $150 a month and gets paid for the entire life of the loan.
If the market value of your home has grown to the point where you can refinance to a new “conventional” loan that is just 80 percent of your home’s value— for example, a $160,000 loan on a $200,000 house— you can refinance and not have to pay for mortgage insurance.
Being able to refinance at a lower interest rate also would save you money each month. These two savings could result in a lower payment of about $250 a month, based on an average loan amount of $200,000 and the current average refinance interest rate of around 3.5 percent.
However, there are costs associated with refinancing that have to be considered. Taxes, bank fees, title insurance and other expenses would need to be paid at closing. If you plan to stick around for a while, it makes sense to refinance.
However, if you intend to sell the home in the next few years, the closing costs likely will eat up any savings you get fromthe lower monthly payments.