Can it get better than 15 year fixed mortgage at 3%?

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BobStrauss
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Can it get better than 15 year fixed mortgage at 3%?

Post by BobStrauss » Fri Sep 06, 2019 8:02 pm

We refinanced back in fall of 2016 to a 15 year mortgage at 3% APR. Now I'm seeing articles about home loan rates dropping to new lows. Can it get much better than what we're currently locked into?

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by AlohaJoe » Fri Sep 06, 2019 8:05 pm

Obviously 2 is better than 3. And 1 is better than 2.

You've been a member since 2011 and haven't noticed in those 8 years that Bogleheads don't usually think rates are predictable?

You're not going to get any answers because none of us know the future of rates.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Silk McCue » Fri Sep 06, 2019 8:06 pm

Thirdfederal.com has 15 year refinance at 2.99 today which was 3.10 just a week ago or so. I would say that it COULD go lower.

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BobStrauss
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by BobStrauss » Fri Sep 06, 2019 8:09 pm

AlohaJoe wrote:
Fri Sep 06, 2019 8:05 pm
Obviously 2 is better than 3. And 1 is better than 2.

You've been a member since 2011 and haven't noticed in those 8 years that Bogleheads don't usually think rates are predictable?

You're not going to get any answers because none of us know the future of rates.
Sure - I get it. But even during the Great Recession, did 15 year rates go much lower than 3%?

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Silk McCue » Fri Sep 06, 2019 8:15 pm

BobStrauss wrote:
Fri Sep 06, 2019 8:09 pm
Sure - I get it. But even during the Great Recession, did 15 year rates go much lower than 3%?
What did you find when you Googled that?

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by whodidntante » Fri Sep 06, 2019 8:19 pm

Most answers in life are provided by the St. Louis Fed.

https://fred.stlouisfed.org/series/MORTGAGE15US

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Chunkachange » Fri Sep 06, 2019 8:25 pm

My 15 yr mortgage, refinanced Nov 2012 is at 2.375%.

A similar rate now would make moving a bit more attractive.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by abuss368 » Fri Sep 06, 2019 8:38 pm

No one knows for sure which way rates are headed. The Federal Reserve could cut rates again, which would impact the market.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by abuss368 » Fri Sep 06, 2019 8:40 pm

Another point to consider is with rates historically very low any further reduction in a mortgage rate would have to be material to make sense for the closing costs incurred. Rates are so low that a very small additional decrease may be splitting hairs.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by abuss368 » Fri Sep 06, 2019 8:42 pm

There may be no tax impact any longer as many taxpayers are electing standard deduction and not itemizing (which would include mortgage interest).
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by mortfree » Fri Sep 06, 2019 8:43 pm

15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by delamer » Fri Sep 06, 2019 8:44 pm

In 2015, we got a 10 year at 2.75%.

So you might want to look a 10 year.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Bud » Fri Sep 06, 2019 8:49 pm

Just checked Aimloan today... quotes down to 2.5% for a 15 yr loan. My current rate is 3.375. Closing costs rise for lower interest rate loans, but they are worth if you plan to stay put for a few years.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Ron Ronnerson » Fri Sep 06, 2019 8:59 pm

I refinanced in December 2012. It’s a 30 year-fixed rate mortgage at 3.235%. It was no-cost /no-points/no escrow account and the cost of the appraisal was refunded at closing. My effective rate is more like 3% due to itemizing on state taxes while my savings at Orion Credit Union earn 4%, (3.5% after factoring in taxes). This loan makes us money at the present moment. I’m hoping to refinance again at some point (perhaps to a 20-year fixed) but rates still appear to be slightly higher than where they were around seven years ago.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by AlohaJoe » Fri Sep 06, 2019 9:00 pm

BobStrauss wrote:
Fri Sep 06, 2019 8:09 pm
AlohaJoe wrote:
Fri Sep 06, 2019 8:05 pm
Obviously 2 is better than 3. And 1 is better than 2.

You've been a member since 2011 and haven't noticed in those 8 years that Bogleheads don't usually think rates are predictable?

You're not going to get any answers because none of us know the future of rates.
Sure - I get it. But even during the Great Recession, did 15 year rates go much lower than 3%?
Surely you've seen the hundreds of news articles about low rates in Europe and Japan. There's no law of physics that says it can never happen in the US.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by regularguy455 » Fri Sep 06, 2019 9:12 pm

Ron Ronnerson wrote:
Fri Sep 06, 2019 8:59 pm
I refinanced in December 2012. It’s a 30 year-fixed rate mortgage at 3.235%. It was no-cost /no-points/no escrow account and the cost of the appraisal was refunded at closing. My effective rate is more like 3% due to itemizing on state taxes while my savings at Orion Credit Union earn 4%, (3.5% after factoring in taxes). This loan makes us money at the present moment. I’m hoping to refinance again at some point (perhaps to a 20-year fixed) but rates still appear to be slightly higher than where they were around seven years ago.
Wouldn’t this be dependent on the balance? 500k @ 3% for a mortgage would need to be matched dollar for dollar in a CD @ 4% to see real profit on the margin.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Chunkachange » Fri Sep 06, 2019 9:20 pm

mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by abuss368 » Fri Sep 06, 2019 9:21 pm

regularguy455 wrote:
Fri Sep 06, 2019 9:12 pm
Ron Ronnerson wrote:
Fri Sep 06, 2019 8:59 pm
I refinanced in December 2012. It’s a 30 year-fixed rate mortgage at 3.235%. It was no-cost /no-points/no escrow account and the cost of the appraisal was refunded at closing. My effective rate is more like 3% due to itemizing on state taxes while my savings at Orion Credit Union earn 4%, (3.5% after factoring in taxes). This loan makes us money at the present moment. I’m hoping to refinance again at some point (perhaps to a 20-year fixed) but rates still appear to be slightly higher than where they were around seven years ago.
Wouldn’t this be dependent on the balance? 500k @ 3% for a mortgage would need to be matched dollar for dollar in a CD @ 4% to see real profit on the margin.
Yes including if it makes sense to refinance at all.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Ron Ronnerson » Fri Sep 06, 2019 9:50 pm

regularguy455 wrote:
Fri Sep 06, 2019 9:12 pm
Ron Ronnerson wrote:
Fri Sep 06, 2019 8:59 pm
I refinanced in December 2012. It’s a 30 year-fixed rate mortgage at 3.235%. It was no-cost /no-points/no escrow account and the cost of the appraisal was refunded at closing. My effective rate is more like 3% due to itemizing on state taxes while my savings at Orion Credit Union earn 4%, (3.5% after factoring in taxes). This loan makes us money at the present moment. I’m hoping to refinance again at some point (perhaps to a 20-year fixed) but rates still appear to be slightly higher than where they were around seven years ago.
Wouldn’t this be dependent on the balance? 500k @ 3% for a mortgage would need to be matched dollar for dollar in a CD @ 4% to see real profit on the margin.
The credit union gives 4% on up to 30k but multiple accounts are allowed (I have three myself). They way I've been looking at it (and perhaps I'm missing something), if my only two choices for a dollar in my pocket are to put it toward the mortgage or deposit it at the credit union, I'm better off making the deposit because the credit union is paying a higher effective rate than the effective rate of the mortgage at this time.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by bampf » Fri Sep 06, 2019 9:52 pm

Try a $0 mortgage at no interest rate. Can't get much better than that!

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by UpsetRaptor » Fri Sep 06, 2019 9:57 pm

Sure it could. Much of Europe has been in the 1% mortgage range for years. Nobody knows nuthin.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by 9-5 Suited » Fri Sep 06, 2019 10:10 pm

abuss368 wrote:
Fri Sep 06, 2019 8:40 pm
Another point to consider is with rates historically very low any further reduction in a mortgage rate would have to be material to make sense for the closing costs incurred. Rates are so low that a very small additional decrease may be splitting hairs.
This is a great point and something I’m experiencing now. We have a 30 year at 3.5% but are tracking to pay it off in 8-10 years, so any closing costs eat deeply into the benefit of refinancing. Keeping an eye out for no closing cost refi opportunities in the 3.0-3.25% range.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by TxAg » Fri Sep 06, 2019 10:33 pm

Ours is a 15 yr at 2.5%

No rush to pay it off

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by IlliniProgrammer » Fri Sep 06, 2019 10:37 pm

AlohaJoe wrote:
Fri Sep 06, 2019 8:05 pm
Obviously 2 is better than 3. And 1 is better than 2.

You've been a member since 2011 and haven't noticed in those 8 years that Bogleheads don't usually think rates are predictable?

You're not going to get any answers because none of us know the future of rates.
Hi. I'm new here, but not to investing. I worked as a fixed income quant on the sellside for a number of years (mostly corporate bonds) and now work in equity statarb.

I disagree with this view on two points.

1.) You can have a martingale in a security or a rate-- that is, a fair game-- with different odds of the result being "higher" or "lower". You see this all of the time in volatility products-- this would include a rates volatility product like a mortgage.

2.) While I do not profess any skill in predicting the overall direction of the market or rates and factor timing, I strongly and deeply disagree with anyone who claims the Efficient Market Hypothesis actually holds. For anyone who disagrees, read up on N. Jegadeesh (1990) or Jegadeesh and Titman (1993). Not to mention Nobel prize winners like Fama and Schiller. The market is often very inefficient because humans are humans, and firms like Two Sigma and RennTech prove that every day. (As well as simpler, dumber, more mortal researchers like myself).

Okay so here is my take on your mortgage rate question.

Mortgages are a fixed income product with a call feature-- making them a rates volatility product. That is, if you have a 15 year mortgage at 3%, and rates jump to 10%, whoever bought your mortgage is stuck with 3%. But if rates drop to 1%, you get to refinance again, and whoever bought your mortgage has to deal with an even lower rate. The more volatile that rates are, the more expensive that call feature becomes for your lender.

And rates have been really volatile right now. I can't pull up the swaptions market, but my guess is that the huge move in the 10 year treasury has also driven up swaption and rate cap premiums-- what one would use to hedge an MBS.

The good news is that the market usually doesn't stay volatile. And rates vol will likely come down. For anyone who disagrees with me, try modeling the VIX and figure out how often the VIX goes up vs. down when the VIX is above 20.

You've also got a bunch of brokers and other people in the industry really busy processing refinances. Supposedly, it's really busy right now. The refinance capacity issues are also going to drive up the rate that you get.

Historically, in the past when we've had the 10-year at 1.5-1.75%, we've eventually gotten down to 2.75% rates with zero points, but it's taken a few months. One other factor is that short-term rates are a lot higher right now than they've been in the past when we've had 2.75% rates.

But... my sense is that we can hit 2.75%. If you have a relatively low rate currently, you can afford to wait. That is what I am doing.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by IlliniProgrammer » Fri Sep 06, 2019 10:50 pm

bampf wrote:
Fri Sep 06, 2019 9:52 pm
Try a $0 mortgage at no interest rate. Can't get much better than that!
Better than that is a $200K mortgage at 3% (tax deductible) and $200K in a Roth IRA (tax-free). One year out of ten, you're going to regret the leverage, but if you can reasonably carry the mortgage, I'd rather have the money in retirement savings.

If inflation is running at 2%, the stock market is going up at a log-adjusted 10%, and your mortgage is 3%, you'd have to be extremely conservative to opt to pay off a tax-deductible mortgage rather than invest the money.

Refinancing from a 30-year to a 15-year is a different matter, and if you happen to have a paid-off 15-year mortgage, good for you. But all else equal, tax-deductible 3% fixed rate financing for 15 years is not a bad deal at all. If I had a safe job, I would *not* pull money out of the stock market to pay off a mortgage at that interest rate. (Pulling a little out to get a 60% LTV and shave a quarter point off of my rate would be a different matter.)

Typically, the rate of return on making the extra payments on a 15-year rather than 30-year mortgage gets you 6-7% returns, and oftentimes paying down your debt to get a 25% or 40% LTV can get you anywhere from 5-7% returns.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by abuss368 » Fri Sep 06, 2019 10:53 pm

9-5 Suited wrote:
Fri Sep 06, 2019 10:10 pm
abuss368 wrote:
Fri Sep 06, 2019 8:40 pm
Another point to consider is with rates historically very low any further reduction in a mortgage rate would have to be material to make sense for the closing costs incurred. Rates are so low that a very small additional decrease may be splitting hairs.
This is a great point and something I’m experiencing now. We have a 30 year at 3.5% but are tracking to pay it off in 8-10 years, so any closing costs eat deeply into the benefit of refinancing. Keeping an eye out for no closing cost refi opportunities in the 3.0-3.25% range.
Thanks. Our bank had something years ago for $250 one could lower the rate without going through the whole loan process.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Cycle » Fri Sep 06, 2019 10:56 pm

Fed typically (always?) cuts rates a minimum of three times, or so I was told on Meb Faber podcast episode with Raoul Pal. We're at one.

I think US will get more cuts when Germany and China are acknowledged to be in recession. Probably another quarter.

I refinanced my condo to 2% thru my credit union during the last recession... Wish I would have stayed there and kept the mortgage!
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by IlliniProgrammer » Fri Sep 06, 2019 11:22 pm

9-5 Suited wrote:
Fri Sep 06, 2019 10:10 pm
abuss368 wrote:
Fri Sep 06, 2019 8:40 pm
Another point to consider is with rates historically very low any further reduction in a mortgage rate would have to be material to make sense for the closing costs incurred. Rates are so low that a very small additional decrease may be splitting hairs.
This is a great point and something I’m experiencing now. We have a 30 year at 3.5% but are tracking to pay it off in 8-10 years, so any closing costs eat deeply into the benefit of refinancing. Keeping an eye out for no closing cost refi opportunities in the 3.0-3.25% range.
I'm going to be the weirdo who suggests that, really the only time it makes sense to make extra payments on your mortgage-- at least in this current low rates environment-- is if you're planning on refinancing or are at the very end of your mortgage. Reasonable people can disagree on this, but this is the conclusion I'm coming to after (1) having mistakenly paid down my mortgage and (2) run some stochastic optimizations on this.

I'm a big fan of Suze Orman and Dave Ramsey. And if mortgage rates were over 5% like they basically were for the ~40-50 years leading up to the past decade, I would wholeheartedly agree with them. But if your mortgage rate is a tax-deductible 3.5%, and you're not close to the end of your mortgage, you're going to do a lot better having your money in the stock market or even a CD.

The problem is that when you pay down a mortgage, it reduces your interest, sure, but you can't undo that transaction. More importantly, you don't get that money back until the mortgage terminates and if you later decide to do a cash-out refinance, you lose the tax deduction on the new money you've borrowed.

If you lose your job, not having a mortgage payment is nice, but having a $50,000 mortgage and $50,000 in the bank-- or even $45,000 in the bank-- is even better. And if you feel safe putting just half of that in the stock market, you're very likely to come out ahead over 5-10 years.

One last thing to make you feel better about paying down your mortgage. There's a number of low-interest products out there for 5-10 year mortgage rates. For instance, Liberty Bank for Savings offers a 7-year mortgage for 2.625% (zero point but full cost refinance). And some credit unions like Central Credit Union can do a 10-year mortgage for a very low cost (IE $250) refinance.

https://www.centralcu.org/cu-info/rates/loan-rates/

If you can afford the extra payments-- or maybe if you've paid down your mortgage to the point where a 15-year or 10-year mortgage is now affordable (but wasn't earlier), and you can save 0.5% or 1% on your interest for paying the mortgage off faster, go for it! Your rate of return on those higher payments is usually going to be 5,7, maybe even 10%. But making extra payments on a mortgage that you're not required to make-- unless you plan on refinancing or paying it off soon anyways-- doesn't make sense. That cash is better deployed in the stock market.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by mortfree » Sat Sep 07, 2019 2:31 am

Chunkachange wrote:
Fri Sep 06, 2019 9:20 pm
mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.
Haha. Good one.

I was mortgage free at age 39 but life happened and we had to move.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by we1 » Sat Sep 07, 2019 3:01 am

Check out the relationship mortgage thread. You can do better if you can move assets.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by smitty1515 » Sat Sep 07, 2019 6:44 am

Chunkachange wrote:
Fri Sep 06, 2019 9:20 pm
mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.
😂
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by RobLyons » Sat Sep 07, 2019 7:03 am

Can it get much better? Yes. Will it? Nobody knows.

Seeing negative mortgage rates in other countries is exciting. Do they offer that rate in the US? No :( Will it ever happen here? Again nobody knows.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by Admiral » Sat Sep 07, 2019 7:31 am

BobStrauss wrote:
Fri Sep 06, 2019 8:02 pm
We refinanced back in fall of 2016 to a 15 year mortgage at 3% APR. Now I'm seeing articles about home loan rates dropping to new lows. Can it get much better than what we're currently locked into?
In October, 2016 I refinanced to a 15 year fixed at 2.25% (from 4%, which I thought would be the lowest I would see in my lifetime). So, yes, it can get better.

Will it? Who knows?

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by MikeG62 » Sat Sep 07, 2019 7:36 am

mortfree wrote:
Sat Sep 07, 2019 2:31 am
Chunkachange wrote:
Fri Sep 06, 2019 9:20 pm
mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.
Haha. Good one.

I was mortgage free at age 39 but life happened and we had to move.
Although I am generally a fan of paying off a mortgage early (provided one has significant excess cash sitting in taxable accounts), this is one of the downsides I have pointed out in these threads. One pays off the mortgage early and subsequently moves, trading up in the process and ending up with a mortgage again. Not saying that is exactly what happened in this case (could have moved from a LCOL area to a HCOL area). It's just not unusual when looking at homes to buy what you can afford. With 100% equity in your existing home, it "feels like" you can afford a lot more.
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by bampf » Sat Sep 07, 2019 11:13 am

IlliniProgrammer wrote:
Fri Sep 06, 2019 10:50 pm
bampf wrote:
Fri Sep 06, 2019 9:52 pm
Try a $0 mortgage at no interest rate. Can't get much better than that!
Better than that is a $200K mortgage at 3% (tax deductible) and $200K in a Roth IRA (tax-free). One year out of ten, you're going to regret the leverage, but if you can reasonably carry the mortgage, I'd rather have the money in retirement savings.

If inflation is running at 2%, the stock market is going up at a log-adjusted 10%, and your mortgage is 3%, you'd have to be extremely conservative to opt to pay off a tax-deductible mortgage rather than invest the money.

Refinancing from a 30-year to a 15-year is a different matter, and if you happen to have a paid-off 15-year mortgage, good for you. But all else equal, tax-deductible 3% fixed rate financing for 15 years is not a bad deal at all. If I had a safe job, I would *not* pull money out of the stock market to pay off a mortgage at that interest rate. (Pulling a little out to get a 60% LTV and shave a quarter point off of my rate would be a different matter.)

Typically, the rate of return on making the extra payments on a 15-year rather than 30-year mortgage gets you 6-7% returns, and oftentimes paying down your debt to get a 25% or 40% LTV can get you anywhere from 5-7% returns.
Surely you have heard the refrain "would you borrow money to put in the market, regardless of how low the rate?" Some people would, some people would not. There is a value / risk assessment. Also, it isn't as simple as tax-deductible and roth. Some don't or can't qualify for either. But, if the question was "No mortgage or mortgage" I would choose debt free every day of the week and twice on Sunday's. It means I don't have to care about what the market does to live in my house. I see the value of leverage. I also see the value of not needing to care about leverage.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by whodidntante » Sat Sep 07, 2019 11:19 am

Cycle wrote:
Fri Sep 06, 2019 10:56 pm
Fed typically (always?) cuts rates a minimum of three times, or so I was told on Meb Faber podcast episode with Raoul Pal. We're at one.
If you believe past is prologue, sure.

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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by IlliniProgrammer » Sat Sep 07, 2019 11:24 am

bampf wrote:
Sat Sep 07, 2019 11:13 am
Surely you have heard the refrain "would you borrow money to put in the market, regardless of how low the rate?" Some people would, some people would not. There is a value / risk assessment. Also, it isn't as simple as tax-deductible and roth. Some don't or can't qualify for either. But, if the question was "No mortgage or mortgage" I would choose debt free every day of the week and twice on Sunday's. It means I don't have to care about what the market does to live in my house. I see the value of leverage. I also see the value of not needing to care about leverage.
It's a little bit different with leverage due to logoptimality. The problem with running a portfolio at a rebalanced 2 or 3 (or in my firm's case, 10x) leverage is that returns can go below -50 or -33 or -10%, and there is no recovery from that. IMO you *never* want to run leverage in a personal account where your broker has recourse against you.

But the mortgage situation is a little different-- certainly if I have a nonrecourse mortgage. Do you want your capital tied up in the market earning 10%, or do you want hundreds of thousands of dollars tied up in this illiquid asset paying 2.75%?

What many people fail to understand is that a mortgage isn't a margin balance. It's something a lot weirder. It's an interest rate that is locked in for 15 years if you would like, or that you can reset to a lower rate if rates go down. It's secured against a very stable asset. One that, to be sure, could drop 40% in value, but probably won't, and that contributes to a housing cost that you know you can afford.

I don't carry a margin balance, but it's a fundamental mistake that many investors make to compare a mortgage that you can afford at 2.75% to a margin balance at 2.75%. The two aren't the same thing. Your broker has the ability to do a margin call; your bank doesn't. Your broker has the ability and desire to come after your other assets; depending on your state, your bank can't and often won't. Your broker can raise your margin rate; your bank can't. Ceteris paribus, a 15-year-fixed mortgage has enough features on it to make it better than margin borrowing at 1.5% IMO.

Most companies choose to run with leverage on their real estate; in fact, their investors generally demand it of the CFO. As individuals, we get the same deal, but even better because of Fannie and Freddie and various government subsidies.

You're free to have your mortgage paid off, and I will 100% advocate everything people can do to reduce their interest payments, but there's nothing wrong with some modest leverage in real-estate, especially when it's cheap, tax-deductible, and can fund other investments.

bampf
Posts: 374
Joined: Thu Aug 04, 2016 6:19 pm

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by bampf » Sat Sep 07, 2019 11:37 am

IlliniProgrammer wrote:
Sat Sep 07, 2019 11:24 am
bampf wrote:
Sat Sep 07, 2019 11:13 am
Surely you have heard the refrain "would you borrow money to put in the market, regardless of how low the rate?" Some people would, some people would not. There is a value / risk assessment. Also, it isn't as simple as tax-deductible and roth. Some don't or can't qualify for either. But, if the question was "No mortgage or mortgage" I would choose debt free every day of the week and twice on Sunday's. It means I don't have to care about what the market does to live in my house. I see the value of leverage. I also see the value of not needing to care about leverage.
It's a little bit different with leverage due to logoptimality. The problem with running a portfolio at a rebalanced 2 or 3 (or in my firm's case, 10x) leverage is that returns can go below -50 or -33 or -10%, and there is no recovery from that. IMO you *never* want to run leverage in a personal account where your broker has recourse against you.

But the mortgage situation is a little different-- certainly if I have a nonrecourse mortgage. Do you want your capital tied up in the market earning 10%, or do you want hundreds of thousands of dollars tied up in this illiquid asset paying 2.75%?

What many people fail to understand is that a mortgage isn't a margin balance. It's something a lot weirder. It's an interest rate that is locked in for 15 years if you would like, or that you can reset to a lower rate if rates go down. It's secured against a very stable asset. One that, to be sure, could drop 40% in value, but probably won't, and that contributes to a housing cost that you know you can afford.

I don't carry a margin balance, but it's a fundamental mistake that many investors make to compare a mortgage that you can afford at 2.75% to a margin balance at 2.75%. The two aren't the same thing. Your broker has the ability to do a margin call; your bank doesn't. Your broker has the ability and desire to come after your other assets; depending on your state, your bank can't and often won't. Your broker can raise your margin rate; your bank can't. Ceteris paribus, a 15-year-fixed mortgage has enough features on it to make it better than margin borrowing at 1.5% IMO.

Most companies choose to run with leverage on their real estate; in fact, their investors generally demand it of the CFO. As individuals, we get the same deal, but even better because of Fannie and Freddie and various government subsidies.

You're free to have your mortgage paid off, and I will 100% advocate everything people can do to reduce their interest payments, but there's nothing wrong with some modest leverage in real-estate, especially when it's cheap, tax-deductible, and can fund other investments.
You have intentionally (or perhaps unintentionally) taken advantage of my purposefully imprecise question. Setting aside margin accounts for the time being, I should have said "would you borrow money on your house to put it into the market?" Some will. Some will not. There are 100 different threads on the whys and why nots, and not worthy of repeating here.

Put another way, if you don't need or want the risk, why take it?

And finally, op, sorry I derailed your thread with my throw away comment. It adds nothing to the value of your question and as such, I will let it rest.

mortfree
Posts: 1845
Joined: Mon Sep 12, 2016 7:06 pm

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by mortfree » Sat Sep 07, 2019 12:16 pm

MikeG62 wrote:
Sat Sep 07, 2019 7:36 am
mortfree wrote:
Sat Sep 07, 2019 2:31 am
Chunkachange wrote:
Fri Sep 06, 2019 9:20 pm
mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.
Haha. Good one.

I was mortgage free at age 39 but life happened and we had to move.
Although I am generally a fan of paying off a mortgage early (provided one has significant excess cash sitting in taxable accounts), this is one of the downsides I have pointed out in these threads. One pays off the mortgage early and subsequently moves, trading up in the process and ending up with a mortgage again. Not saying that is exactly what happened in this case (could have moved from a LCOL area to a HCOL area). It's just not unusual when looking at homes to buy what you can afford. With 100% equity in your existing home, it "feels like" you can afford a lot more.
Yeah. Traded up to get into a different school district and closer to work.

Went from a 225k home to 400k.

Mortgaged 200k in Dec 2017, current balance is 184k.

Investments are around 600k, 450 of that is in 401k. I could payoff the current mortgage with all taxable money but would be left with pennies.

Was definitely a psychological hit going from no mortgage to having a mortgage since it was a lot of effort to payoff the original house. But I was only without a mortgage for about a year and a half.

sergio
Posts: 440
Joined: Sat Jun 20, 2015 6:52 pm

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by sergio » Sat Sep 07, 2019 12:45 pm

IlliniProgrammer wrote:
Fri Sep 06, 2019 11:22 pm
9-5 Suited wrote:
Fri Sep 06, 2019 10:10 pm
abuss368 wrote:
Fri Sep 06, 2019 8:40 pm
Another point to consider is with rates historically very low any further reduction in a mortgage rate would have to be material to make sense for the closing costs incurred. Rates are so low that a very small additional decrease may be splitting hairs.
This is a great point and something I’m experiencing now. We have a 30 year at 3.5% but are tracking to pay it off in 8-10 years, so any closing costs eat deeply into the benefit of refinancing. Keeping an eye out for no closing cost refi opportunities in the 3.0-3.25% range.
The problem is that when you pay down a mortgage, it reduces your interest, sure, but you can't undo that transaction. More importantly, you don't get that money back until the mortgage terminates and if you later decide to do a cash-out refinance, you lose the tax deduction on the new money you've borrowed.

If you lose your job, not having a mortgage payment is nice, but having a $50,000 mortgage and $50,000 in the bank-- or even $45,000 in the bank-- is even better. And if you feel safe putting just half of that in the stock market, you're very likely to come out ahead over 5-10 years.
This is why I would only pay extra on the mortgage if I had a plan to pay it off all-together in something like 3 years. I wouldn't throw an extra $1,000 or whatever I had lying around in year 2 of a 30-year mortgage for the hell of it. After running a bunch of numbers and simulations I think the best "balanced" approach is to put 20% down, get a 15-year mortgage, and pay the minimum every month.

Also I recall a thread a while back about someone who bought a very very expensive home. I think he paid well over $1 million for it but later realized there were severe structural problems, and repairs were starting to approach the $1 mil mark, with no end in sight. Several people suggested he simply walk away. This is a lot easier to do if you don't pay a ton extra towards the mortgage.

ivk5
Posts: 985
Joined: Thu Sep 22, 2016 9:05 am

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by ivk5 » Sat Sep 07, 2019 1:10 pm

May be able to recast if you have cash flow crunch but have paid down principal.

User avatar
DanMahowny
Posts: 994
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Re: Can it get better than 15 year fixed mortgage at 3%?

Post by DanMahowny » Sat Sep 07, 2019 1:41 pm

Chunkachange wrote:
Fri Sep 06, 2019 8:25 pm
My 15 yr mortgage, refinanced Nov 2012 is at 2.375%.

A similar rate now would make moving a bit more attractive.
You have me beat. Nice job man.

I have a 15 yr at 2.59%
Funding secured

JBTX
Posts: 5537
Joined: Wed Jul 26, 2017 12:46 pm

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by JBTX » Sat Sep 07, 2019 1:44 pm

BobStrauss wrote:
Fri Sep 06, 2019 8:02 pm
We refinanced back in fall of 2016 to a 15 year mortgage at 3% APR. Now I'm seeing articles about home loan rates dropping to new lows. Can it get much better than what we're currently locked into?
Looking into my all knowing crystal ball...

If economy stays strong, I doubt it gets much lower.

If economy falters, rates very well could go lower.

You're welcome.

JBTX
Posts: 5537
Joined: Wed Jul 26, 2017 12:46 pm

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by JBTX » Sat Sep 07, 2019 1:49 pm

Bud wrote:
Fri Sep 06, 2019 8:49 pm
Just checked Aimloan today... quotes down to 2.5% for a 15 yr loan. My current rate is 3.375. Closing costs rise for lower interest rate loans, but they are worth if you plan to stay put for a few years.
I hear aimloan thrown out here a lot. Has anybody here actually used them? Do they get it done efficiently and reliably?

MikeG62
Posts: 2240
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Can it get better than 15 year fixed mortgage at 3%?

Post by MikeG62 » Sat Sep 07, 2019 1:51 pm

mortfree wrote:
Sat Sep 07, 2019 12:16 pm
MikeG62 wrote:
Sat Sep 07, 2019 7:36 am
mortfree wrote:
Sat Sep 07, 2019 2:31 am
Chunkachange wrote:
Fri Sep 06, 2019 9:20 pm
mortfree wrote:
Fri Sep 06, 2019 8:43 pm
15-year, 0 points is at 2.875 where I have a mortgage (30y at 3.875, 2y into the mortgage)
Trying to reconcile your username with your post, I can only assume you divorced a man named Mort.
Haha. Good one.

I was mortgage free at age 39 but life happened and we had to move.
Although I am generally a fan of paying off a mortgage early (provided one has significant excess cash sitting in taxable accounts), this is one of the downsides I have pointed out in these threads. One pays off the mortgage early and subsequently moves, trading up in the process and ending up with a mortgage again. Not saying that is exactly what happened in this case (could have moved from a LCOL area to a HCOL area). It's just not unusual when looking at homes to buy what you can afford. With 100% equity in your existing home, it "feels like" you can afford a lot more.
Yeah. Traded up to get into a different school district and closer to work.

Went from a 225k home to 400k.

Mortgaged 200k in Dec 2017, current balance is 184k.

Investments are around 600k, 450 of that is in 401k. I could payoff the current mortgage with all taxable money but would be left with pennies.

Was definitely a psychological hit going from no mortgage to having a mortgage since it was a lot of effort to payoff the original house. But I was only without a mortgage for about a year and a half.
Query whether you would have traded up if you had a sizable mortgage on the original property? This is the risk I was talking about.

I would not prepay my mortgage if it left me with limited funds in taxable accounts. I paid mine off early (in or around 2014), but had seven figures sitting in taxable accounts. So it was a guaranteed return equal to the interest rate on my mortgage (believe it was 3.0% at the time) vs. what I’d be earnings in interest bearing MMF’s or muni bonds (where the money was otherwise sitting or would be going). I chose to eliminate the mortgage. My reaming mortgage at the time was only five figures.
Real Knowledge Comes Only From Experience

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