## To refinance or not to refinance. That is the question.

April 14th, 2009 at 08:14 pmI need some advice about whether or not refinancing would be a good idea. We currently have a 30 yr fixed FHA loan with an interest rate of 6%. The balance we owe is $126,915.43. Our principal and interest payment is $814.24 and our PMI is currently $52.35 monthly. Our escrow (taxes and insurance is $413.36 monthly) According to the Central Appraisal District of my county, the value of our house is $145,393. I believe that would give us a loan to value ratio of 87%. I know that mortgages with a loan to value ratio of 80% require PMI.

I called my lender (Wells Fargo) and inquired about a FHA streamline refinance. They told me that there is no appraisal required and no pulling of credit required for a streamline refinance.

They offered me two options for a 30 year fixed refinance. The first one is a 5% interest rate with 1/2 of a point. There would be closing costs of about $3,500 rolled into the loan. The second one is a 4.875% interest rate but we would pay $4,200 out of pocket for closing costs.

I don't want to pay anything out of pocket so we are looking at the 5% one. With this the principal and interest would be $722 a month and PMI would be $54 a month. The quoted me a monthly payment of $1,162.00 including escrow.

They also told me that we have an escrow shortage of $876.00 and our payment will go up in June to $1,324. We are currently paying through escrow $66 a month for insurance and $264 a month for taxes. In June, insurance will increase to $73 and taxes will increase to $311.

The total new 30 year loan would be for $134,507 and would include upfront FHA insurance, the loan payoff and closing costs.

All of this information has my head spinning and I am not sure if refinancing would be the best option for us.

We are following the Dave Ramsey plan and just finished baby step two this week. We don't know whether it is worth it to refinance for the lower interest rate or if we should just try to keep it as is and pay extra as we can. I also thought about checking into a 15 year FHA refinance to see how the payment would increase with that. With a lower interest rate I am wondering if that would be an option since the payment is not really an issue.

Also, it was asked in the comments how long we've been in the house. We've been here almost five years. We closed in June of 2004.

Any advice y'all could give is sincerely appreciated.