Please check my refi math/logic

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Please check my refi math/logic

Postby SRenaeP » Tue Jan 15, 2013 10:06 am

I'm 2.5 years into a 30 year mortgage. It's a PenFed 5/5 ARM with a current rate of 3.25% and I pay extra principal every month to have it paid off eight years from now. PenFed has a 2.5% 10 FRM with a 1% origination fee. The current balance is ~$244K and my math says I'll save ~$7600 over the 10 year period, even accounting for the origination fee. Does that compute? If so, is there any reason NOT to refi? I have the cash to cover the origination fee (won't roll it into the principal) and can cover the increased minimum payments. If I do refi, I'm thinking of not paying extra principal to stick to the eight year payoff plan but instead investing the money because after tax (I will continue to exceed the standard deduction), the interest rate will be crazy low. I'm already maxing all tax-advantaged space possible (401k, Roth IRA, SEP-IRA).

-Steph
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Re: Please check my refi math/logic

Postby ShowMeTheER » Tue Jan 15, 2013 10:12 am

0.75% interest savings in each of 8 years on a balance at that level... yeah, that checks out to me and sounds like a no-brainer even for your accelerated schedule.
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Re: Please check my refi math/logic

Postby icefr » Tue Jan 15, 2013 2:55 pm

I just did a refi with Schwab Bank, into a 5/1 ARM at 2.5%, no-cost to me. You might be able to get something similar, with no origination fee.
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Re: Please check my refi math/logic

Postby icefr » Tue Jan 15, 2013 3:32 pm

I ran a mortgage calculator and the regular payment on a 10 year FRM at 2.5% with a balance of $244,000 would be $2,303.96. Can you work that into your monthly budget? I would, personally, be hesitant to be forced to stick to that level of payments.

PenFed also has an enticing 1.99% Home Equity Loan: https://www.penfed.org/home-equity-loan ... r-10312012 It could be looked at as a 5 year FRM at 1.99%. I'm considering looking into that more thoroughly when the resulting monthly payment would be ~$2,000, i.e. a loan balance of ~$114,000.

You say you're maxing out your tax-advantaged space. Are you also buying i-bonds? You can buy at most $10k per year through TreasuryDirect directly.
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Re: Please check my refi math/logic

Postby SRenaeP » Tue Jan 15, 2013 4:20 pm

icefr wrote:I just did a refi with Schwab Bank, into a 5/1 ARM at 2.5%, no-cost to me. You might be able to get something similar, with no origination fee.


How did you get it at no cost? I see a 2.25% 5/1 ARM at Schwab but the closing costs are $3370.

-Steph
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Re: Please check my refi math/logic

Postby SRenaeP » Tue Jan 15, 2013 4:22 pm

icefr wrote:I ran a mortgage calculator and the regular payment on a 10 year FRM at 2.5% with a balance of $244,000 would be $2,303.96. Can you work that into your monthly budget? I would, personally, be hesitant to be forced to stick to that level of payments.

PenFed also has an enticing 1.99% Home Equity Loan: https://www.penfed.org/home-equity-loan ... r-10312012 It could be looked at as a 5 year FRM at 1.99%. I'm considering looking into that more thoroughly when the resulting monthly payment would be ~$2,000, i.e. a loan balance of ~$114,000.

You say you're maxing out your tax-advantaged space. Are you also buying i-bonds? You can buy at most $10k per year through TreasuryDirect directly.


I can afford the new $2300 payments. What's the advantage/benefit to buying I bonds instead of taxable investing? If added to the existing 401k and IRA contributions, that's ~18% of new money in bonds every year.

-Steph
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Re: Please check my refi math/logic

Postby icefr » Tue Jan 15, 2013 4:49 pm

SRenaeP wrote:
icefr wrote:I just did a refi with Schwab Bank, into a 5/1 ARM at 2.5%, no-cost to me. You might be able to get something similar, with no origination fee.


How did you get it at no cost? I see a 2.25% 5/1 ARM at Schwab but the closing costs are $3370.

-Steph


I saw that on the website, so I called and asked what the rate would be at no-cost. I had seen 2.25% on the website and it turned into 2.5% no-cost. I actually came out about $250 ahead by refinancing, which is just the upfront savings and ignores the future savings of reducing the interest rate from 3% to 2.5%.
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Re: Please check my refi math/logic

Postby icefr » Tue Jan 15, 2013 4:59 pm

SRenaeP wrote:What's the advantage/benefit to buying I bonds instead of taxable investing? If added to the existing 401k and IRA contributions, that's ~18% of new money in bonds every year.


With i-bonds, the interest can be tax-deferred until you redeem them [1] and they don't mature completely for 30 years. My (personal) plan is to pay off my mortgage (~4-5 years out) while maxing out the 401(k) and Roth IRA and then I'll use i-bonds and stock index funds in taxable outside of retirement accounts once the mortgage is paid off. I'm still researching i-bonds a bit more myself, but they seem intriguing.

[1] http://www.treasurydirect.gov/indiv/res ... nsider.htm
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Re: Please check my refi math/logic

Postby porcupine » Tue Jan 15, 2013 5:15 pm

SRenaeP wrote:I'm 2.5 years into a 30 year mortgage. It's a PenFed 5/5 ARM with a current rate of 3.25% and I pay extra principal every month to have it paid off eight years from now. PenFed has a 2.5% 10 FRM with a 1% origination fee. The current balance is ~$244K and my math says I'll save ~$7600 over the 10 year period, even accounting for the origination fee. Does that compute? If so, is there any reason NOT to refi? I have the cash to cover the origination fee (won't roll it into the principal) and can cover the increased minimum payments. If I do refi, I'm thinking of not paying extra principal to stick to the eight year payoff plan but instead investing the money because after tax (I will continue to exceed the standard deduction), the interest rate will be crazy low. I'm already maxing all tax-advantaged space possible (401k, Roth IRA, SEP-IRA).

-Steph

When you go from Penfed to Penfed, wouldn't you have to pay more closing costs than just the origination fee? How much total are you paying per month currently and how high can you go? Do you have more money saved in addition to your emergency fund?

- Porcupine
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Re: Please check my refi math/logic

Postby SRenaeP » Tue Jan 15, 2013 5:51 pm

porcupine wrote:
SRenaeP wrote:I'm 2.5 years into a 30 year mortgage. It's a PenFed 5/5 ARM with a current rate of 3.25% and I pay extra principal every month to have it paid off eight years from now. PenFed has a 2.5% 10 FRM with a 1% origination fee. The current balance is ~$244K and my math says I'll save ~$7600 over the 10 year period, even accounting for the origination fee. Does that compute? If so, is there any reason NOT to refi? I have the cash to cover the origination fee (won't roll it into the principal) and can cover the increased minimum payments. If I do refi, I'm thinking of not paying extra principal to stick to the eight year payoff plan but instead investing the money because after tax (I will continue to exceed the standard deduction), the interest rate will be crazy low. I'm already maxing all tax-advantaged space possible (401k, Roth IRA, SEP-IRA).

-Steph

When you go from Penfed to Penfed, wouldn't you have to pay more closing costs than just the origination fee? How much total are you paying per month currently and how high can you go? Do you have more money saved in addition to your emergency fund?

- Porcupine


I'm going to call PenFed tonight to verify but I would think the closing costs would be minimal since they've already done an appraisal, title search, etc. for the last refi. I've been paying $2500+/mo (varies because I toss 'found money' at the mortgage). I could go much higher if I HAD to but I don't really want to because that would be pulling from the monthly amount to the car replacement fund. I have a decent amount in excess of the e-fund but it's earmarked for car replacement (2-3 years out) and possible home improvements for 2013.

-Steph
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Re: Please check my refi math/logic

Postby Watty » Tue Jan 15, 2013 6:53 pm

I'm 2.5 years into a 30 year mortgage. It's a PenFed 5/5 ARM with a current rate of 3.25%


One thing to check on is what the interest rate will change to in 2.5 years when it unlocks for the first time. Depending on what the rates are then it could bery well go down.
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