We moved into our home in June of 2007. At the time, we got a 30-year mortgage rate of 5.875%, which was pretty good since the average rate was around 6.25%. Luckily we had locked in the ‘lower’ rate a few weeks prior.
At the time, we put down 20% of the purchase price of the house. I had hoped that this would create a comfortable cushion because prices in the Detroit area had already been dropping. In fact, we purchased the house at a price 13% lower than what the previous owners had paid for it just a couple years before.
Unfortunately, the market has continued to trend way downward, and the amount of equity in our house has decreased tremendously to the point that we are nowhere near the level where we have 20% equity in our home.
If we were to refinance, I’m certain that a lender would do a new appraisal on the property given the change in market conditions over the past two years. This would definitely show that we do not have the 20% threshold of equity required to avoid personal mortgage insurance (PMI).
When I ran the numbers, we would probably be able to get a rate about 1% lower than what we’re paying now. This would save us about $225 per month. However, PMI would take away a huge chunk of it. And, if I recall, it is also not tax deductible, so I think our net cost would actually be higher for the short term.
While it’s true that PMI would be dropped at some point, it could be a long way off before prices stabilize and before we paid enough to get to that point. Too long where I’m not comfortable making the move.
Our other option would be to basically make another down payment to get us to the 20% equity level. While we have cash available to perhaps swing this, I don’t like the idea of having little cash on hand, especially in this day in age.
While I would love to write some articles about us refinancing, I simply don’t see it as a viable option for us.