-
REFINANCE DURING CHAPTER 13 REPAYMENT
I have been paying my Chapter 13 repayment plan for eight months now, along with my mortgage, and no late payments. March will be 1 year. My interest rate is 5.625%. My home is worth $333.100, and I owe $226.000. Is it worth trying to refinance to a FHA mortgage in March 2025 or should I stay where I am? My mortgage is owned by investors, and they are always wanting to take me to court to increase my payments. And this is after we went to court and agreed on a repayment plan.
-
1 Reply
-
Respectfully, regarding refinancing your mortgage under a Chapter 13 repayment plan, there has to be some reasoning or a plan behind it. Especially for someone who has been under and is reaching the one-year mark. I decided to include the steps, especially if one is factoring if they wish to refinance to an FHA mortgage or stay with their existing mortgage:
Current Interest Rate vs. FHA Rate
Current Rate: Your current interest rate is 5.625%.
Potential FHA Rate: It is best to analyze current FHA mortgage rates, as they can be lower than your existing rates. A lower rate can be beneficial because one can pay a reduced monthly and overall interest.
Equity Position
Home Value: Your home is valued at $333,100, and your mortgage is just $226,000, which equals an equity of approximately $107,100.
Loan-to-Value (LTV) Ratio: When utilizing a $226,000 Loan on a $333,100 home, your Loan-to-Value ratio is roughly 68%. This is good for refinancing, as most lenders prefer an LTV ratio of 80 or below for a conventional loan.
Benefits of Refinancing to FHA
Lower Down Payment: It is easier to refinance due to lower equity, around 3.5%, compared to conventional loans.
Potentially Lower Monthly Payments: If one successfully secures a much lower interest rate, the monthly payments could drop significantly.
Reduced Mortgage Insurance Premiums: The MIP you pay depends on the terms of the ITIN FHA loan you are servicing. You may be able to pay a lower MIP than what is currently applicable to your mortgage.
Impact of Chapter 13 Bankruptcy
Eligibility: If it’s been one year since you have consistently paid through the Chapter 13 plan, an FHA loan can be approved.
Credit Requirements: You must meet FHA loan qualifying credit scores for bad credit (580 is the minimum requirement with a 3.5% downpayment).
Debt-to-Income Ratio: Reconsider how you will use DTI while refinancing, as you will still make Chapter 13 payments even during the refinance process.
Investor Relations and Court Issues
Current Lender Issues: Multiple payment adjustments in a court setting with a current lender suggest an unwillingness to stabilize, which causes stress. A refinance may smooth funding frustrations.
Better Terms: More motivation may come from being able to refinance the mortgage to a less stressful lender that offers better terms and focuses on communication.
Costs of Refinancing
Closing Costs: Consider the closing expenses incurred when refinancing using a second mortgage. They range between 2% and 5% of the house’s financing cost.
Break Even Point: From your ideas, look only at how much you will save in a month after Marie refinances the mortgage she should benefit from, which means how many months will be required to break even.
Based on the facts you provided, consider switching to an FHA loan, especially if you can obtain a lower rate and become more financially stable. However, it should also be noted that all the costs, savings, and income limitations should be economically evaluated.
Next Steps:
Contact A Mortgage Expert: Explain your case to a lender specializing in FHA loans and restructurings.
Request Multiple Quotes: Approach different financiers and lenders for a better deal.
Estimate Your Savings: Run calculations to decide if it makes sense to refinance for you in this instance.
With the cancer of refinancing eating away at one’s financial situation, one should be aware of their options and take the more suitable course of action.