Refinance Mortgage?

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Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Refinance Mortgage?

Post by invest4 » Sat Jan 04, 2020 8:04 am

Hello All,

Strongly considering a refinance of my current mortgage. I'm a bit uncertain if the potential savings are sufficient to reset the whole bit or if I miss some other important considerations. We will be 3 years into the current loan in May 2020. It is difficult to say whether or not we will forever be in this home. We are in our late 40s with 4 children still to put through college (first already started, second begins next year, and so on and so forth). Entirely possible we decide to downsize further down the road as kids move out or determine a ranch style vs 2-story is a better setup at an older age, etc.

Current Loan
Term: 30 yr
Originated: May 2017
Appraised Value: 500K
Loan Amount: 400K
Interest Rate: 3.875%
No Escrow

New Loan
Term: 30 year
Interest Rate: 3.5%
2K closing costs
No Escrow
No Cash Out

Some additional info in case of need / utility:
* Only debt is mortgage
* Maxing out key tax advantaged items (401K, Roth, HSA)
* Current savings: $1.4M (retirement accounts, taxable, etc.)


I have considered a 15 year term (@3%), but have decided I prefer the 30 for a variety of reasons, the most compelling for me being that I can always pay extra toward the 30 yr if I wish vs the considerably larger, fixed monthly payment of the 15 yr.

Please let me know if anything additional needed and many thanks.

Silk McCue
Posts: 4490
Joined: Thu Feb 25, 2016 7:11 pm

Re: Refinance Mortgage?

Post by Silk McCue » Sat Jan 04, 2020 9:41 am

I would only do it if you paid extra each month to maintain the remaining 27 year term rather than 30. You could also consider paying down a chunk of money on the current mortgage and recasting the loan to match the lower payment you would have received on the new loan and avoid the closing costs.

Cheers

jb1
Posts: 443
Joined: Sun Nov 27, 2016 8:33 am
Location: NC

Re: Refinance Mortgage?

Post by jb1 » Sat Jan 04, 2020 9:45 am

I am young and not the best when it comes to refinancing, but for such a small change in interest, I dont see the point.

nolesrule
Posts: 1588
Joined: Thu Feb 26, 2015 10:59 am

Re: Refinance Mortgage?

Post by nolesrule » Sat Jan 04, 2020 10:24 am

How much is actually left on the mortgage right now or what was the original loan amount? That information is needed to do a comparison.

On the face of it, I would only do the refinance if I continued to pay the original payment amount. It's not all that much of a difference and it's possible you may end up paying more interest in the long run, but I can't tell from the information provided.

niceguy7376
Posts: 2670
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Refinance Mortgage?

Post by niceguy7376 » Sat Jan 04, 2020 10:56 am

If you only paid the min every month on the current loan and plan on doing the same, what is even the reduction in monthly payment?
I dont see the benefit of refinancing for that minor difference if you are starting another 30 year term and pay ton of interest in the first few months.

babystep
Posts: 89
Joined: Tue Apr 09, 2019 9:44 am

Re: Refinance Mortgage?

Post by babystep » Sat Jan 04, 2020 12:16 pm

invest4 wrote:
Sat Jan 04, 2020 8:04 am
Hello All,

Strongly considering a refinance of my current mortgage. I'm a bit uncertain if the potential savings are sufficient to reset the whole bit or if I miss some other important considerations. We will be 3 years into the current loan in May 2020. It is difficult to say whether or not we will forever be in this home. We are in our late 40s with 4 children still to put through college (first already started, second begins next year, and so on and so forth). Entirely possible we decide to downsize further down the road as kids move out or determine a ranch style vs 2-story is a better setup at an older age, etc.

Current Loan
Term: 30 yr
Originated: May 2017
Appraised Value: 500K
Loan Amount: 400K
Interest Rate: 3.875%
No Escrow

New Loan
Term: 30 year
Interest Rate: 3.5%
2K closing costs
No Escrow
No Cash Out

Some additional info in case of need / utility:
* Only debt is mortgage
* Maxing out key tax advantaged items (401K, Roth, HSA)
* Current savings: $1.4M (retirement accounts, taxable, etc.)


I have considered a 15 year term (@3%), but have decided I prefer the 30 for a variety of reasons, the most compelling for me being that I can always pay extra toward the 30 yr if I wish vs the considerably larger, fixed monthly payment of the 15 yr.

Please let me know if anything additional needed and many thanks.
The potential savings are significant. Yearly savings on the interest is about $1500. The breakeven of the closing costs will be in 2 years.

antiga
Posts: 26
Joined: Wed Jan 06, 2016 6:16 pm

Re: Refinance Mortgage?

Post by antiga » Sat Jan 04, 2020 12:31 pm

Is it an option to take a slightly higher interest rate with $0 or near-zero closing costs? I would expect this could be possible at ~3.6125%.

Internet lenders such as AIMLOAN (no relation, just an example for who I used) offer this and it can be a good option if you see a possibility of rates continuing to drop during your time horizon.

260chrisb
Posts: 470
Joined: Wed Apr 28, 2010 7:26 pm

Re: Refinance Mortgage?

Post by 260chrisb » Sat Jan 04, 2020 12:37 pm

I'm always intrigued with these questions. You can obviously "save" some money in interest with the reduced rate but aren't the closing costs really a true cost regardless of the number of years it takes to break even? You've obviously done well at your age raising 4 kids and having 1.4M in savings. You're giving away money to the bank for a lower rate and at the same time had considered a 15 year mortgage; can't you come out further ahead by simply paying more each month or by dropping a lump sum at the mortgage a couple times a year?

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Sat Jan 04, 2020 12:54 pm

antiga wrote:
Sat Jan 04, 2020 12:31 pm
Is it an option to take a slightly higher interest rate with $0 or near-zero closing costs? I would expect this could be possible at ~3.6125%.

Internet lenders such as AIMLOAN (no relation, just an example for who I used) offer this and it can be a good option if you see a possibility of rates continuing to drop during your time horizon.
Yes - I will find out what the difference is...thank you. The lender shared some optimism of 3.375 by floating it a bit, but I am more pessimistic.

260chrisb wrote:
Sat Jan 04, 2020 12:37 pm
I'm always intrigued with these questions. You can obviously "save" some money in interest with the reduced rate but aren't the closing costs really a true cost regardless of the number of years it takes to break even? You've obviously done well at your age raising 4 kids and having 1.4M in savings. You're giving away money to the bank for a lower rate and at the same time had considered a 15 year mortgage; can't you come out further ahead by simply paying more each month or by dropping a lump sum at the mortgage a couple times a year?
Thanks for raising this. I also wonder if there is a more prudent approach. I don’t want to walk away from a good refinance option, but not sure how to assess whether what you propose would be a better alternative.

nolesrule wrote:
Sat Jan 04, 2020 10:24 am
How much is actually left on the mortgage right now or what was the original loan amount? That information is needed to do a comparison.

On the face of it, I would only do the refinance if I continued to pay the original payment amount. It's not all that much of a difference and it's possible you may end up paying more interest in the long run, but I can't tell from the information provided.
Original loan amount was 400k. Current remaining is about 380k.

Silk McCue wrote:
Sat Jan 04, 2020 9:41 am
I would only do it if you paid extra each month to maintain the remaining 27 year term rather than 30. You could also consider paying down a chunk of money on the current mortgage and recasting the loan to match the lower payment you would have received on the new loan and avoid the closing costs.

Cheers
Good points. I am interested to reduce the overall loan duration and ultimate interest paid. What I am mindful of in the in intermediate terms is ensuring I maintain sufficient liquid funds as we journey through these years of elevated expenses associated with teen drivers and college expenses that may not be completely covered by 529s. All the while continuing to max retirement savings.

Chadnudj
Posts: 837
Joined: Tue Oct 29, 2013 11:22 am

Re: Refinance Mortgage?

Post by Chadnudj » Sat Jan 04, 2020 12:58 pm

You could always explore a 20-year mortgage -- it'd give you a little more breathing room than the 15, but a lower interest rate than the 30. And you seem to have enough savings/room in your budget to afford it (given the $1.4 million between retirement/taxable accounts, fact you have no other debt, and the fact you're maxing out retirement accounts already).

mortfree
Posts: 2250
Joined: Mon Sep 12, 2016 7:06 pm

Re: Refinance Mortgage?

Post by mortfree » Sat Jan 04, 2020 12:58 pm

I don’t see the point on the refinance to a 30 here.

You could make a few extra payments and effectively create a lower than the 3.5% refinance. (As poster above states as well). Throw the 2k at the current mortgage (closing costs)

Now if you wanted to go to a 10, 15 or 20 that would be worth it BUT you need the cash flow with college kids.

Stay the course here.

Cross posted as you replied

dknightd
Posts: 2164
Joined: Wed Mar 07, 2018 11:57 am

Re: Refinance Mortgage?

Post by dknightd » Sat Jan 04, 2020 12:59 pm

jb1 wrote:
Sat Jan 04, 2020 9:45 am
I am young and not the best when it comes to refinancing, but for such a small change in interest, I dont see the point.
I agree. You have to run the numbers. But the difference between your current rate, and projected rate is small enough I would not bother.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

3funder
Posts: 1325
Joined: Sun Oct 15, 2017 9:35 pm

Re: Refinance Mortgage?

Post by 3funder » Sat Jan 04, 2020 1:01 pm

You are wise not to seriously consider shortening the duration. The stock market will return a lot more than 3.5% - 3.875% annualized over the course of 30 years. Best to invest the extra cash flow, especially with four college educations to fund.

user9532
Posts: 32
Joined: Sun Dec 18, 2016 10:08 pm

Re: Refinance Mortgage?

Post by user9532 » Sat Jan 04, 2020 1:46 pm

You are almost three years into the current mortgage. So currently your outstanding balance would be about $381,000, and your P&I portion about $1,885/month. If you are refinancing, you are refinancing the $381,000 for another 30 years, and your P&I portion would be about $1,715/month, a savings of $170 a month. You will recoup the closing costs in a year.

nolesrule
Posts: 1588
Joined: Thu Feb 26, 2015 10:59 am

Re: Refinance Mortgage?

Post by nolesrule » Sat Jan 04, 2020 2:21 pm

If you do the refinance and pay the new payment, you'll save about $5000 in interest. At some point in about 16 years or so, the old loan will have less interest per month, so you begin to lose ground. If you do the refinance but pay the old mortgage payment, you'll save about $48,000 in interest and finish in about 25.5 years.

The breakeven point is about 1.5 years on the closing costs in terms of interest saved.

MindBogler
Posts: 965
Joined: Wed Apr 17, 2013 12:05 pm

Re: Refinance Mortgage?

Post by MindBogler » Sat Jan 04, 2020 3:05 pm

niceguy7376 wrote:
Sat Jan 04, 2020 10:56 am
I dont see the benefit of refinancing for that minor difference if you are starting another 30 year term and pay ton of interest in the first few months.
The interest paid is a function of the remaining balance versus the amortization schedule. Restarting the schedule with a lower interest rate does not cause you to pay more interest. It only appears that way because the balance is highest in month zero. This is a very common misnomer about mortgages.

Silk McCue
Posts: 4490
Joined: Thu Feb 25, 2016 7:11 pm

Re: Refinance Mortgage?

Post by Silk McCue » Sat Jan 04, 2020 3:12 pm

MindBogler wrote:
Sat Jan 04, 2020 3:05 pm
niceguy7376 wrote:
Sat Jan 04, 2020 10:56 am
I dont see the benefit of refinancing for that minor difference if you are starting another 30 year term and pay ton of interest in the first few months.
The interest paid is a function of the remaining balance versus the amortization schedule. Restarting the schedule with a lower interest rate does not cause you to pay more interest. It only appears that way because the balance is highest in month zero. This is a very common misnomer about mortgages.
Would you agree that if they made the original payment on the new loan that they would pay even less interest and that would be a superior outcome?

Cheers

MindBogler
Posts: 965
Joined: Wed Apr 17, 2013 12:05 pm

Re: Refinance Mortgage?

Post by MindBogler » Sat Jan 04, 2020 3:39 pm

Silk McCue wrote:
Sat Jan 04, 2020 3:12 pm
Would you agree that if they made the original payment on the new loan that they would pay even less interest and that would be a superior outcome?

Cheers
Yes, I agree.

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Sat Jan 04, 2020 3:50 pm

4 kids?? Keep the payment as low as possible to preserve cashflow. No brainer. I would not refinance unless the rate is close to 1% lower. You can always pay more once a year if you have spare cash (tho I would not do that with a sub-4% mortgage, I would invest the $).

Paradise
Posts: 56
Joined: Mon Dec 18, 2017 6:15 am

Re: Refinance Mortgage?

Post by Paradise » Sat Jan 04, 2020 5:42 pm

May I ask where you found a 30 year fixed for 3.5% and 2k in closing costs? I'm not seeing anything like that. Are you excluding 3rd party fees and taxes?

RJC
Posts: 552
Joined: Fri Dec 14, 2018 1:40 pm

Re: Refinance Mortgage?

Post by RJC » Sat Jan 04, 2020 9:00 pm

I found a 3.5% (no points) 30 year with $0 lender fee on Bankrate. 3rd party fees will make it around $1800.

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Sun Jan 05, 2020 12:34 am

Paradise wrote:
Sat Jan 04, 2020 5:42 pm
May I ask where you found a 30 year fixed for 3.5% and 2k in closing costs? I'm not seeing anything like that. Are you excluding 3rd party fees and taxes?
Absolutely. Found via broader search. Give 'em a call.

Gateway Capital Mortgage

www.gwcmortgage.com

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Sun Jan 05, 2020 12:43 am

Admiral wrote:
Sat Jan 04, 2020 3:50 pm
4 kids?? Keep the payment as low as possible to preserve cashflow. No brainer. I would not refinance unless the rate is close to 1% lower. You can always pay more once a year if you have spare cash (tho I would not do that with a sub-4% mortgage, I would invest the $).
Thanks. 1% lower sounds delightful, albeit doubtful. Of course, my first mortgage was 8.25% (2000)...would have never imagined even 3.5%. My positioning on the general mortgage topic thus far has been similar to what you describe (invest vs pay down mortgage given low rates). However, I eventually want to have that debt retired as well and being in my late 40s, it creeps into my mind more and more.

investor231i
Posts: 21
Joined: Mon Dec 30, 2019 8:56 pm

Re: Refinance Mortgage?

Post by investor231i » Sun Jan 05, 2020 3:20 am

Why not consider an ARM product. If you are getting 3.5% for 30-year fixed, you may be able to get sub-3 for an ARM. You may want to take 5/1 if you are pretty sure you want to change within 5 years, or 7/1 or 10/1 if you want to give yourself some margin. Anyway, people keep re-financing every 2-3 years, so ARM's is not a bad technique assuming you always put more principal every month; and not prolong the life of the loan.

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Sun Jan 05, 2020 9:43 am

invest4 wrote:
Sun Jan 05, 2020 12:43 am
Admiral wrote:
Sat Jan 04, 2020 3:50 pm
4 kids?? Keep the payment as low as possible to preserve cashflow. No brainer. I would not refinance unless the rate is close to 1% lower. You can always pay more once a year if you have spare cash (tho I would not do that with a sub-4% mortgage, I would invest the $).
Thanks. 1% lower sounds delightful, albeit doubtful. Of course, my first mortgage was 8.25% (2000)...would have never imagined even 3.5%. My positioning on the general mortgage topic thus far has been similar to what you describe (invest vs pay down mortgage given low rates). However, I eventually want to have that debt retired as well and being in my late 40s, it creeps into my mind more and more.
I would not have chosen a 30 year mortgage product at age late-40s, but then you didn't ask me 8-)

Due to having 3 kids still on the dole (and assuming that you have not saved up, oh $600k for their college tuition), you should not lock yourself into the higher payment that a 15 year note would incur (though of course the shorter term is preferable), but nor should you refinance to ANOTHER 30 year term, which simply re-sets the clock. The current note can always be prepaid later or (more appealing) paid off later with investment gains, or refinanced when you are more certain of increased cashflow.

Look at it this way: almost nobody keeps the same mortgage on the same house with the same terms for 30 years, and neither will you. They move, or they get a raise and refinance, or rates drop and they refinance anyway. When rates dropped some years ago to 4%, I refinanced to another 30 and told myself "this is it, rates will never be lower." Then in 2012 I refinanced again, to 15 yrs at 2.25%. Nobody knows what rates will do in the future.

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Thu Jan 09, 2020 7:02 am

Admiral wrote:
Sun Jan 05, 2020 9:43 am

I would not have chosen a 30 year mortgage product at age late-40s, but then you didn't ask me 8-)

Due to having 3 kids still on the dole (and assuming that you have not saved up, oh $600k for their college tuition), you should not lock yourself into the higher payment that a 15 year note would incur (though of course the shorter term is preferable), but nor should you refinance to ANOTHER 30 year term, which simply re-sets the clock. The current note can always be prepaid later or (more appealing) paid off later with investment gains, or refinanced when you are more certain of increased cashflow.
Consistent with your suggestion, while a shorter term may be preferable, the higher payment would introduce a different kind of risk (such as in the case of job loss for example) and put pressure on continuing to max out tax advantaged contributions (401k, Roth, HSA) while navigating the college years. I have not firmly decided how much of their college education will be funded by us, but we are attempting to be smart about it...local junior college for first two years and transfer to university...all the while continuing to live at home.
Admiral wrote:
Sun Jan 05, 2020 9:43 am
Look at it this way: almost nobody keeps the same mortgage on the same house with the same terms for 30 years, and neither will you. They move, or they get a raise and refinance, or rates drop and they refinance anyway. When rates dropped some years ago to 4%, I refinanced to another 30 and told myself "this is it, rates will never be lower." Then in 2012 I refinanced again, to 15 yrs at 2.25%. Nobody knows what rates will do in the future.
Fully agreed. I often wonder what is the effective interest rate for most mortgages where people are often moving / taking out new loans). I was able to get a quote of 3.625% with no closing costs, but does not seem to offer sufficient value vs continuing with the existing...which I will do for now. Many thanks to all for their input and support.

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Thu Feb 06, 2020 8:58 pm

Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Fri Feb 07, 2020 7:01 am

invest4 wrote:
Thu Feb 06, 2020 8:58 pm
Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?
Nobody keeps the same loan for 30 years. Nobody. They sell, or they refinance (usually multiple times). The lifetime interest you will pay is therefore a moot point and IMO should be disregarded. (There's also the issue of inflation over 30 years, which eats away at the value of those dollars, but that's a separate issue.)

If you can get a no-cost refinance to save two hundred odd bucks a month, then do so. I recommend 15 year loans to anyone who can afford them. Better in most ways

RobLyons
Posts: 720
Joined: Tue Oct 31, 2017 12:55 pm

Re: Refinance Mortgage?

Post by RobLyons » Fri Feb 07, 2020 7:30 am

Admiral wrote:
Fri Feb 07, 2020 7:01 am
invest4 wrote:
Thu Feb 06, 2020 8:58 pm
Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?
Nobody keeps the same loan for 30 years. Nobody. They sell, or they refinance (usually multiple times). The lifetime interest you will pay is therefore a moot point and IMO should be disregarded. (There's also the issue of inflation over 30 years, which eats away at the value of those dollars, but that's a separate issue.)

If you can get a no-cost refinance to save two hundred odd bucks a month, then do so. I recommend 15 year loans to anyone who can afford them. Better in most ways

I will (mostly likely) keep my same loan for 30 years. 3.50% conventional. Nothing worth refinancing on the market. Change my mind :D :wink:
"Great parenting sets the foundation for a better world"

ivk5
Posts: 1105
Joined: Thu Sep 22, 2016 9:05 am

Re: Refinance Mortgage?

Post by ivk5 » Fri Feb 07, 2020 7:35 am

invest4 wrote:
Thu Feb 06, 2020 8:58 pm
Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?
You will be saving 50bp interest on outstanding balance every year - close to 2k in the first year.

You can make an extra principal payment each month in the amount of the difference in payments btw the two loans, and have the whole thing paid off sooner than current loan ends.

clammyhands
Posts: 28
Joined: Sat Oct 19, 2019 9:36 am

Re: Refinance Mortgage?

Post by clammyhands » Fri Feb 07, 2020 7:43 am

So what would you folks do in my situation?

Early 30s, refinancing a 530k house (with 350k left on mortgage). $1825.63 per month P&I. I'm inclined to go for the option with the lowest monthly payments, although we can afford larger payments than we have now. My rationalization is I would pay off the points before moving or refinancing again (4 to 5 years) and I get to invest the extra cash in the market. I also want to roll the points into the mortgage.

Current mortgage: 30 year fixed @4.325%

Option 1: 30 year fixed @3.125%, 5548 points cost, $1499 per month, (I think 4 to 5 year points payoff vs. the 3.5% mortgage taking into account time value of money with 7% discount rate)
Option 2: 30 year fixed @3.375%, $960 points cost, $1547 per month,
Option 3: 30 year fixed @3.5%, $-620 lender credit, $1572 per month,

There are also 20 year and 15 year fixed mortgages, but I have not been convinced these are better than 30 year mortgages. Isn't it better to put less cash into the principal, and invest it into the market instead, especially if you have a decent time horizon like I do? You still get to "keep" any house appreciation even with less equity (the beauty of mortgages). I understand some people are debt adverse, but I actually like cheap debt. The added flexibility also seems worth it.

Option 4: 20 year fixed @3.375%, $-539 lender credit, $2007 per month

Thank you!

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Fri Feb 07, 2020 7:44 am

RobLyons wrote:
Fri Feb 07, 2020 7:30 am
Admiral wrote:
Fri Feb 07, 2020 7:01 am
invest4 wrote:
Thu Feb 06, 2020 8:58 pm
Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?
Nobody keeps the same loan for 30 years. Nobody. They sell, or they refinance (usually multiple times). The lifetime interest you will pay is therefore a moot point and IMO should be disregarded. (There's also the issue of inflation over 30 years, which eats away at the value of those dollars, but that's a separate issue.)

If you can get a no-cost refinance to save two hundred odd bucks a month, then do so. I recommend 15 year loans to anyone who can afford them. Better in most ways

I will (mostly likely) keep my same loan for 30 years. 3.50% conventional. Nothing worth refinancing on the market. Change my mind :D :wink:
So you know what rates will be in five ten or twenty years?

You know that when your income goes up and you can easily afford a 15 year loan you will continue to pay more than you need to, just... because? You know that you will never, ever prepay this loan, and will thus pay every cent of interest in the amortization schedule?

Trust me. Looking at lifetime interest on a 30 year note is a fool’s errand.
Last edited by Admiral on Fri Feb 07, 2020 8:07 am, edited 1 time in total.

HomeStretch
Posts: 4337
Joined: Thu Dec 27, 2018 3:06 pm

Re: Refinance Mortgage?

Post by HomeStretch » Fri Feb 07, 2020 7:51 am

A no-cost refinance to a lower loan rate is the right choice IMO.

Pay an additional amount towards principal each month in addition to the regular mortgage payment such that the new loan is paid off by December 2046 (payoff date of original loan). Or earlier if you want the mortgage paid off by a certain age. Don’t go backwards with your mortgage.

I created an amortization table in Excel so I could calculate the amount of additional principal to pay. I also used the Excel table to verify each year the December 31 outstanding loan balance and interest paid per the Lender.
Last edited by HomeStretch on Fri Feb 07, 2020 7:52 am, edited 1 time in total.

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Fri Feb 07, 2020 7:52 am

clammyhands wrote:
Fri Feb 07, 2020 7:43 am
So what would you folks do in my situation?

Early 30s, refinancing a 530k house (with 350k left on mortgage). $1825.63 per month P&I. I'm inclined to go for the option with the lowest monthly payments, although we can afford larger payments than we have now. My rationalization is I would pay off the points before moving or refinancing again (4 to 5 years) and I get to invest the extra cash in the market. I also want to roll the points into the mortgage.

Current mortgage: 30 year fixed @4.325%

Option 1: 30 year fixed @3.125%, 5548 points cost, $1499 per month, (I think 4 to 5 year points payoff vs. the 3.5% mortgage taking into account time value of money with 7% discount rate)
Option 2: 30 year fixed @3.375%, $960 points cost, $1547 per month,
Option 3: 30 year fixed @3.5%, $-620 lender credit, $1572 per month,

There are also 20 year and 15 year fixed mortgages, but I have not been convinced these are better than 30 year mortgages. Isn't it better to put less cash into the principal, and invest it into the market instead, especially if you have a decent time horizon like I do? You still get to "keep" any house appreciation even with less equity (the beauty of mortgages). I understand some people are debt adverse, but I actually like cheap debt. The added flexibility also seems worth it.

Option 4: 20 year fixed @3.375%, $-539 lender credit, $2007 per month

Thank you!

No. A shorter duration is almost always better IF YOU CAN AFFORD IT. (Which means you can continue to save for retirement while making a higher payment). This assumes a favorable rate spread b/w 30 and 15. Equity is built faster and you pay much less interest.

If everyone knew they were guaranteed to beat their loan rate by investing then everyone would finance 100% of the purchase. I agree that is is LIKELY one can beat a sub 4% rate over the long term but that is not a given, and often is not true on smaller time scales.

aerosurfer
Posts: 203
Joined: Fri Feb 02, 2018 6:10 am

Re: Refinance Mortgage?

Post by aerosurfer » Fri Feb 07, 2020 8:02 am

invest4 wrote:
Thu Feb 06, 2020 8:58 pm
:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

If you split the savings and pay $100/month additional you save

$23,392 and 33 months term

If you pay $200/month the savings jumps to

$42,214 and 60 months

If you refi in 10 or 15 years the balance will be smaller. New mortgage will be based on that amount and then current rates.

If you downsize, you will have that much more in equity and unless you are buying outright, will still have a new mortgage to deal with. Either a shorter term to pay off quicker or see results on principal payments sooner or you can take another 30 and it simply becomes part of your fixed expenses into retirement

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Fri Feb 07, 2020 9:51 am

HomeStretch wrote:
Fri Feb 07, 2020 7:51 am
A no-cost refinance to a lower loan rate is the right choice IMO.

Pay an additional amount towards principal each month in addition to the regular mortgage payment such that the new loan is paid off by December 2046 (payoff date of original loan). Or earlier if you want the mortgage paid off by a certain age. Don’t go backwards with your mortgage.

I created an amortization table in Excel so I could calculate the amount of additional principal to pay. I also used the Excel table to verify each year the December 31 outstanding loan balance and interest paid per the Lender.

aerosurfer wrote:
Fri Feb 07, 2020 8:02 am

If you split the savings and pay $100/month additional you save

$23,392 and 33 months term

If you pay $200/month the savings jumps to

$42,214 and 60 months

If you refi in 10 or 15 years the balance will be smaller. New mortgage will be based on that amount and then current rates.

If you downsize, you will have that much more in equity and unless you are buying outright, will still have a new mortgage to deal with. Either a shorter term to pay off quicker or see results on principal payments sooner or you can take another 30 and it simply becomes part of your fixed expenses into retirement
If I understand both of you correctly, are you suggesting the refinance is only really worthwhile if you put the monthly savings on the payment toward the new mortgage? Just trying to clarify and ensure I have the intended understanding.

Admiral
Posts: 2852
Joined: Mon Oct 27, 2014 12:35 pm

Re: Refinance Mortgage?

Post by Admiral » Fri Feb 07, 2020 10:04 am

invest4 wrote:
Fri Feb 07, 2020 9:51 am
HomeStretch wrote:
Fri Feb 07, 2020 7:51 am
A no-cost refinance to a lower loan rate is the right choice IMO.

Pay an additional amount towards principal each month in addition to the regular mortgage payment such that the new loan is paid off by December 2046 (payoff date of original loan). Or earlier if you want the mortgage paid off by a certain age. Don’t go backwards with your mortgage.

I created an amortization table in Excel so I could calculate the amount of additional principal to pay. I also used the Excel table to verify each year the December 31 outstanding loan balance and interest paid per the Lender.

aerosurfer wrote:
Fri Feb 07, 2020 8:02 am

If you split the savings and pay $100/month additional you save

$23,392 and 33 months term

If you pay $200/month the savings jumps to

$42,214 and 60 months

If you refi in 10 or 15 years the balance will be smaller. New mortgage will be based on that amount and then current rates.

If you downsize, you will have that much more in equity and unless you are buying outright, will still have a new mortgage to deal with. Either a shorter term to pay off quicker or see results on principal payments sooner or you can take another 30 and it simply becomes part of your fixed expenses into retirement
If I understand both of you correctly, are you suggesting the refinance is only really worthwhile if you put the monthly savings on the payment toward the new mortgage? Just trying to clarify and ensure I have the intended understanding.
It's time to talk inflation.

When you pre-pay a loan, you realize no savings until the loan is paid off. Your payment stays the same.

Let's say you pre-pay a 30 year loan such that you pay it off 33 mos early(let's round up, to three years). So, the loan is paid off in 2047, not 2050. And you've saved $23k (approx).

Here's the problem: you've saved $23k in 2047 dollars, not 2020 dollars. Even with modest 2% inflation, your future $23k is worth just $13,475 today. At 3% inflation, it buys as much as $10,345 today.

In addition to that, in 2047 your mortgage payment will seem like lunch money.

Why would you pre-pay a dollar today to save 35 cents in the future?

HomeStretch
Posts: 4337
Joined: Thu Dec 27, 2018 3:06 pm

Re: Refinance Mortgage?

Post by HomeStretch » Fri Feb 07, 2020 10:17 am

invest4 wrote:
Fri Feb 07, 2020 9:51 am
If I understand both of you correctly, are you suggesting the refinance is only really worthwhile if you put the monthly savings on the payment toward the new mortgage? Just trying to clarify and ensure I have the intended understanding.
I believe the refinance is worthwhile whether you payoff the new mortgage over the new 30-year loan term or over the remaining term of the original mortgage. Once you have the best refi terms, start the refi ASAP. If a better rate comes along in a year, you can always refinance again

The point of my prior post is simply payoff the new loan by the original loan’s end date.

Often people will say, for example, “wow, I saved $400/ month by refinancing to a lower rate”! The hypothetical $400 savings might be comprised of a “true” savings of $220/month due to the lower rate and $180/month due to extending the loan term out by another 4 years. Unless you are in a cash crunch, I don’t see the benefit of paying interest over the additional 4 years. Get the mortgage paid off by your retirement date or, more ideally IMO, by the time kids (if any) go to college. The freed up cash flow will help with the college tuition payments (if parents intend to help with college costs).

You will get different opinions on whether to payoff the new mortgage over its stated 30-year term or the 26-year original loan term. I’m in the latter camp but understand the former camp’s position.

Best of luck with your refi!
Last edited by HomeStretch on Fri Feb 07, 2020 10:21 am, edited 1 time in total.

JGoneRiding
Posts: 1928
Joined: Tue Jul 15, 2014 3:26 pm

Re: Refinance Mortgage?

Post by JGoneRiding » Fri Feb 07, 2020 10:18 am

investor231i wrote:
Sun Jan 05, 2020 3:20 am
Why not consider an ARM product. If you are getting 3.5% for 30-year fixed, you may be able to get sub-3 for an ARM. You may want to take 5/1 if you are pretty sure you want to change within 5 years, or 7/1 or 10/1 if you want to give yourself some margin. Anyway, people keep re-financing every 2-3 years, so ARM's is not a bad technique assuming you always put more principal every month; and not prolong the life of the loan.
Have you shopped Arms recently? I could have written the OP. So I am constantly shopping looking for less than 3.5% most arms I have seen even at things like aimloan are the same price as standard 30 yr. I have no idea why but they aren't a savings currently.

aerosurfer
Posts: 203
Joined: Fri Feb 02, 2018 6:10 am

Re: Refinance Mortgage?

Post by aerosurfer » Fri Feb 07, 2020 11:38 am

invest4 wrote:
Fri Feb 07, 2020 9:51 am
HomeStretch wrote:
Fri Feb 07, 2020 7:51 am
A no-cost refinance to a lower loan rate is the right choice IMO.

Pay an additional amount towards principal each month in addition to the regular mortgage payment such that the new loan is paid off by December 2046 (payoff date of original loan). Or earlier if you want the mortgage paid off by a certain age. Don’t go backwards with your mortgage.

I created an amortization table in Excel so I could calculate the amount of additional principal to pay. I also used the Excel table to verify each year the December 31 outstanding loan balance and interest paid per the Lender.

aerosurfer wrote:
Fri Feb 07, 2020 8:02 am

If you split the savings and pay $100/month additional you save

$23,392 and 33 months term

If you pay $200/month the savings jumps to

$42,214 and 60 months

If you refi in 10 or 15 years the balance will be smaller. New mortgage will be based on that amount and then current rates.

If you downsize, you will have that much more in equity and unless you are buying outright, will still have a new mortgage to deal with. Either a shorter term to pay off quicker or see results on principal payments sooner or you can take another 30 and it simply becomes part of your fixed expenses into retirement
If I understand both of you correctly, are you suggesting the refinance is only really worthwhile if you put the monthly savings on the payment toward the new mortgage? Just trying to clarify and ensure I have the intended understanding.
You had stated in an earlier post that the difference in keeping or refinance was under $7k for the life of the loan. For the same payment cost you can refi and save 5 years and $40k+. If you need or want the extra $200/month you are still coming out ahead at the end by 7k. Just depends what your intentions are.

For my current Refi, I went from a 20year to a 15 year. I looked at break even point of the mortgage cost vs overpaying (about 23 months) and the 60 month point. This was just a near term result in could put into tangible perspective, not full term. We assume this isn't our forever house so 5-7 years down the road let's me know the difference in equity I should have between the 3 options...

Do nothing
Keep current, pay as if a 15
Refi to 15

The comment above about inflation is another perspective to how to approach the money from a total picture. I still would like to retire it cheaper and sooner then invest or use that money elsewhere. Or at least have significantly more equity in when I sell

clammyhands
Posts: 28
Joined: Sat Oct 19, 2019 9:36 am

Re: Refinance Mortgage?

Post by clammyhands » Fri Feb 07, 2020 12:39 pm

Admiral wrote:
Fri Feb 07, 2020 7:52 am
clammyhands wrote:
Fri Feb 07, 2020 7:43 am
So what would you folks do in my situation?

Early 30s, refinancing a 530k house (with 350k left on mortgage). $1825.63 per month P&I. I'm inclined to go for the option with the lowest monthly payments, although we can afford larger payments than we have now. My rationalization is I would pay off the points before moving or refinancing again (4 to 5 years) and I get to invest the extra cash in the market. I also want to roll the points into the mortgage.

Current mortgage: 30 year fixed @4.325%

Option 1: 30 year fixed @3.125%, 5548 points cost, $1499 per month, (I think 4 to 5 year points payoff vs. the 3.5% mortgage taking into account time value of money with 7% discount rate)
Option 2: 30 year fixed @3.375%, $960 points cost, $1547 per month,
Option 3: 30 year fixed @3.5%, $-620 lender credit, $1572 per month,

There are also 20 year and 15 year fixed mortgages, but I have not been convinced these are better than 30 year mortgages. Isn't it better to put less cash into the principal, and invest it into the market instead, especially if you have a decent time horizon like I do? You still get to "keep" any house appreciation even with less equity (the beauty of mortgages). I understand some people are debt adverse, but I actually like cheap debt. The added flexibility also seems worth it.

Option 4: 20 year fixed @3.375%, $-539 lender credit, $2007 per month

Thank you!

No. A shorter duration is almost always better IF YOU CAN AFFORD IT. (Which means you can continue to save for retirement while making a higher payment). This assumes a favorable rate spread b/w 30 and 15. Equity is built faster and you pay much less interest.

If everyone knew they were guaranteed to beat their loan rate by investing then everyone would finance 100% of the purchase. I agree that is is LIKELY one can beat a sub 4% rate over the long term but that is not a given, and often is not true on smaller time scales.
Thank you for your input.

I ran the numbers (I think I did it correctly) over 30 years. A 30 year fixed @3.375% will break even after taxes with a 20 year fixed @3.25% assuming a 5.28% return on investment (pretax). So over 30 years I'd have to believe the stock market will return more than 5.28% annualized for the 30 year mortgage to make sense. This all assumes interest is tax deductible. That's definitely not a slam dunk, but it seems possible that the market would beat that over a 30 year horizon. I see what you're saying, though, that the 20 year fixed gives me essentially risk free 5.28% return vs. the 30 year fixed.

KIDSTRACE
Posts: 1
Joined: Fri Feb 07, 2020 9:40 pm

Re: Refinance Mortgage?

Post by KIDSTRACE » Fri Feb 07, 2020 9:46 pm

On a fixed 30 year ($268,800 refi) I'm being quoted 3.785% - $2688 at closing - $1,264 P/I.

What mortgage lender are you using?

Topic Author
invest4
Posts: 136
Joined: Wed Apr 24, 2019 2:19 am

Re: Refinance Mortgage?

Post by invest4 » Sat Feb 08, 2020 4:24 am

HomeStretch wrote:
Fri Feb 07, 2020 10:17 am
I believe the refinance is worthwhile whether you payoff the new mortgage over the new 30-year loan term or over the remaining term of the original mortgage. Once you have the best refi terms, start the refi ASAP. If a better rate comes along in a year, you can always refinance again

The point of my prior post is simply payoff the new loan by the original loan’s end date.

Often people will say, for example, “wow, I saved $400/ month by refinancing to a lower rate”! The hypothetical $400 savings might be comprised of a “true” savings of $220/month due to the lower rate and $180/month due to extending the loan term out by another 4 years. Unless you are in a cash crunch, I don’t see the benefit of paying interest over the additional 4 years. Get the mortgage paid off by your retirement date or, more ideally IMO, by the time kids (if any) go to college. The freed up cash flow will help with the college tuition payments (if parents intend to help with college costs).

You will get different opinions on whether to payoff the new mortgage over its stated 30-year term or the 26-year original loan term. I’m in the latter camp but understand the former camp’s position.

Best of luck with your refi!

Thanks for clarifying. In general, I'm of the mindset to borrow as much as possible (with 20% down) for as long as possible (30 year max) and pay it back with inflated dollars. However, when considering retirement, I think I would prefer not to have that outlay any longer.

HomeStretch wrote:
Fri Feb 07, 2020 7:51 am
A no-cost refinance to a lower loan rate is the right choice IMO.

Pay an additional amount towards principal each month in addition to the regular mortgage payment such that the new loan is paid off by December 2046 (payoff date of original loan). Or earlier if you want the mortgage paid off by a certain age. Don’t go backwards with your mortgage.

I created an amortization table in Excel so I could calculate the amount of additional principal to pay. I also used the Excel table to verify each year the December 31 outstanding loan balance and interest paid per the Lender.
aerosurfer wrote:
Fri Feb 07, 2020 8:02 am

If you split the savings and pay $100/month additional you save

$23,392 and 33 months term

If you pay $200/month the savings jumps to

$42,214 and 60 months

If you refi in 10 or 15 years the balance will be smaller. New mortgage will be based on that amount and then current rates.

If you downsize, you will have that much more in equity and unless you are buying outright, will still have a new mortgage to deal with. Either a shorter term to pay off quicker or see results on principal payments sooner or you can take another 30 and it simply becomes part of your fixed expenses into retirement

I will definitely consider whether or not to take the "savings" and just keep paying the same mortgage amount or other for this purpose.

aerosurfer wrote:
Fri Feb 07, 2020 8:02 am
You had stated in an earlier post that the difference in keeping or refinance was under $7k for the life of the loan. For the same payment cost you can refi and save 5 years and $40k+. If you need or want the extra $200/month you are still coming out ahead at the end by 7k. Just depends what your intentions are.

For my current Refi, I went from a 20year to a 15 year. I looked at break even point of the mortgage cost vs overpaying (about 23 months) and the 60 month point. This was just a near term result in could put into tangible perspective, not full term. We assume this isn't our forever house so 5-7 years down the road let's me know the difference in equity I should have between the 3 options...

Do nothing
Keep current, pay as if a 15
Refi to 15

The comment above about inflation is another perspective to how to approach the money from a total picture. I still would like to retire it cheaper and sooner then invest or use that money elsewhere. Or at least have significantly more equity in when I sell

Do nothing is definitely an option. Accelerating payments or refi to a 15 would not be a consideration for me. As highlighted earlier above, I'm quite comfortable to borrow what I consider to be cheap money with a 30 year term. While there is some appeal to a 15 year...I more value the greater flexibility with a 30 year payment to buffer any "shock" events...job loss, significant medical, etc. Also, fundamentally, I would have to make some choices as I would not be able to manage a 15 year payment and continue making maximum contributions to 401k, Roth, HSA, 529s for 4 kids, other.

clammyhands
Posts: 28
Joined: Sat Oct 19, 2019 9:36 am

Re: Refinance Mortgage?

Post by clammyhands » Sat Feb 08, 2020 8:03 am

KIDSTRACE wrote:
Fri Feb 07, 2020 9:46 pm
On a fixed 30 year ($268,800 refi) I'm being quoted 3.785% - $2688 at closing - $1,264 P/I.

What mortgage lender are you using?
That seems high I think. I'm refinancing with Better.com and have had a good experience thus far. Try getting a quote on Better.com or Aimloan.com. You should be able to get 3.375 or 3.5% on a 30 yr fixed for 0 points and no lender fee. These rates assume credit > 760. You could also try Lenderfi which I've seen mentioned on this forum a lot, although they didn't work out for me because my wife and I own > 5 rental properties and that went against their policy.

RobLyons
Posts: 720
Joined: Tue Oct 31, 2017 12:55 pm

Re: Refinance Mortgage?

Post by RobLyons » Sat Feb 08, 2020 9:48 am

Admiral wrote:
Fri Feb 07, 2020 7:44 am
RobLyons wrote:
Fri Feb 07, 2020 7:30 am
Admiral wrote:
Fri Feb 07, 2020 7:01 am
invest4 wrote:
Thu Feb 06, 2020 8:58 pm
Update and request for additional input on this topic.

Since my last post, I had learned some additional information about my current mortgage which I was not fully aware of. This was due to the construction loan which was then converted to a "permanent" one after our house was built.

Origination Date: 2016
Loan Amount: $400,000
Loan Rate: 3.875%
Loan Duration: 352 months...not 360 (as home was under the construction loan part for these 8 months)
Loan Payment: $1903.64
Outstanding Principal Balance: $380,754.68

Mortgage rates have also trended down further...new and better offer.

Origination Date: 2020
Loan Amount: $380,754.68
Loan Rate: 3.375
Loan Payment: $1683.30
No Closing Costs

The challenge I have is the mortgage clock reset to 30 years and what I am likely to really save (how long will we actually stay in the house, etc.)

I utilize the following refinance comparison calculator: https://www.calculatestuff.com/financia ... calculator

You may see the results via the following link:

https://www.calculatestuff.com/financia ... 00#results

For those that prefer not to utilize the link:

Current Loan
Total Payments: $612,971.33
Total Interest: $232,216.65
Payoff Date: December 7, 2046

Refinance Loan
Total Payments: $605,989.34
Total Interest: $225,234.66
Payoff Date: Feb 7, 2050

By refinancing the current loan balance of $380,754.68 at 3.375% over 30 years, it will decrease monthly payments by $220.34 and add 38 months to the loan term. The total interest paid over the life of the loan will decrease by $6,981.99.

I am wondering if the difference is worth the 'price of admission', particularly in regard to the longer loan and considering we may downsize in 10-15 years or simply pay it off as we head into retirement. Essentially, paying all that heavy interest on the front of the new loan again.

I am just trying to make sure I am considering the appropriate factors. When I look beyond the lower payment and consider the new term, etc., it doesn't strike me as a "slam dunk" to do it?
Nobody keeps the same loan for 30 years. Nobody. They sell, or they refinance (usually multiple times). The lifetime interest you will pay is therefore a moot point and IMO should be disregarded. (There's also the issue of inflation over 30 years, which eats away at the value of those dollars, but that's a separate issue.)

If you can get a no-cost refinance to save two hundred odd bucks a month, then do so. I recommend 15 year loans to anyone who can afford them. Better in most ways

I will (mostly likely) keep my same loan for 30 years. 3.50% conventional. Nothing worth refinancing on the market. Change my mind :D :wink:
So you know what rates will be in five ten or twenty years?

You know that when your income goes up and you can easily afford a 15 year loan you will continue to pay more than you need to, just... because? You know that you will never, ever prepay this loan, and will thus pay every cent of interest in the amortization schedule?

Trust me. Looking at lifetime interest on a 30 year note is a fool’s errand.


I try not to speak in absolutes for this exact reason. I used the words most likely and there's reasons for that..

- Nobody knows what rates will be, however, in twenty years I will be just about mortgage free at that point (22 years left now)
also, it seems unlikely rates will go low enough to make it worth refinancing, 3.50% is historically super low. I would need to see a 2.50% or lower with no points/costs to make a 15 refi worth it. can't afford to pay more.

-my income isn't going up any time soon
(I've been at the same work place for 8 years, no possibilities of getting more than 2.5% raises and a market adjustment once every 3-4 years)
I have no interest in management at my work place and no interest working more than I already do. (60hrs next week) not going back to school in my late 30s/early 40s, already had a career change at 30.

- We have 1 main income, plenty of bills that won't go away, some debt, 2 kids that will probably be going to college, cars that need fixing, home maintenance expenses, trying to fund retirement accounts, etc, paying extra on the mortgage is low priority. Not saying it can't change but unlikely.


So refinancing to a 10 or 15 would be great right now if I would obtain a much lower rate and save $$, but unlikely due to those factors above.
Good discussion, I'll keep my fingers crossed that something drastic changes to improve our financial future but it's unlikely..
"Great parenting sets the foundation for a better world"

mortfree
Posts: 2250
Joined: Mon Sep 12, 2016 7:06 pm

Re: Refinance Mortgage?

Post by mortfree » Sat Feb 08, 2020 10:24 am

For a data point my credit union is offering:

15-year at 2.875
20-year at 3.25
30-year at 3.375

Closing costs on a 180k (my amount) would be around 3k-ish.
Last edited by mortfree on Sat Feb 08, 2020 12:13 pm, edited 1 time in total.

clammyhands
Posts: 28
Joined: Sat Oct 19, 2019 9:36 am

Re: Refinance Mortgage?

Post by clammyhands » Sat Feb 08, 2020 12:00 pm

The spread between 15/20 yr and 30 yr mortgages currently doesn't seem large enough to justify the 15/20yr mortgages in my opinion. The spread between 30 and 20 yr fixed mortgages is 0.125% based on what I'm seeing. I think that small of a spread more than justifies the flexibility and possibility of investing the monthly payment difference of the 30 year. I feel like a lot of the advice given on this forum is assuming a larger spread (like 0.5% or greater) which was more common in the past.

psychoslowmatic
Posts: 196
Joined: Fri Jul 19, 2013 2:34 pm

Re: Refinance Mortgage?

Post by psychoslowmatic » Sat Feb 08, 2020 12:10 pm

Did everyone suggesting prepaying/15 year miss that the OP has 4 kids in or about to be in college? Their cash flow has other demands for the foreseeable future.

OP, it's not a bad loan, but I'd shop LenderFi, Better.com, or zillow mortgage marketplace to look for a closer-to-zero cost loan. The higher your loan amount the easier it is for lenders to roll costs into the rate. I wouldn't consider an ARM unless it was significantly below 30 year (>0.375%) and got you through the college years.

Also consider adding back in escrow. If you're >20% equity the lenders will often waive escrow for free after closing, but during closing it usually costs a 0.25% fee. You fill up escrow at closing then get it back in a couple months.

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