Dear Dr. Don,
I am quite aware of the housing market problems and how it has affected interest rates. Should I refinance my home in 2008? We were hoping to take advantage of the low rates and possibly drop our private mortgage insurance. We bought our home in Philadelphia in November 2005 for $205,000 at 6.25 percent interest. We put no money down. Our outstanding balance is $200,000 and we currently pay $165 per month in PMI.
Do you think the value of my home has gone up in spite of the housing dilemma? Please let me know what I should do.
-- Olivea Ownership
My pet theory is that most homeowners have a pretty good sense of what their home is worth. This idea really gets put to the test in sluggish or falling markets.
I can't tell you whether your home has gone up in value in the two-plus years you've owned it. However, you can get some opinions by trying a real estate appraisal site such as Zillow, RealEstateABC.com or HomeGain.
The Bankrate feature, "Real estate value Web sites good but not perfect" can help you understand the pros and cons of using these guides. A local real estate agent may provide you with an estimate of your home's value even if you don't have any immediate plans to list the property. Agents sometimes do this in the hope that when you are ready to list, you'll hire them.
Another option is to pay for a professional
appraisal of your home. Homeowners typically shy
away from this solution because they don't want
to have to pay for a second appraisal as part
of the refinancing process. If you know what financial
institution you plan to use in refinancing your
home, you can ask them to request an appraisal
from an approved appraiser. Expect to pay the
lender $300 to $400 for an appraisal.
Your home will have to appraise for $250,000 if you are to avoid PMI on the refinancing. That will put the outstanding loan balance of $200,000 at 80 percent of the home's value.
If you don't have enough equity in your home to avoid PMI when refinancing the first mortgage, you can consider a piggyback mortgage.
With a piggyback mortgage, a first
mortgage is issued at 80 percent loan-to-value
and a home equity mortgage is issued for the balance
of the loan. The first mortgage doesn't require
PMI. But piggyback mortgages may be harder to
come by in the wake of the troubles facing the
mortgage underwriting industry.