Minor regret with a 15-year mortgage

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sergio
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Minor regret with a 15-year mortgage

Post by sergio »

We originally bought a house in May 2018 with 5% down, $65/month PMI, 30year mortgage @ around 4.5% fixed. Made the equivalent 15-year monthly payment.

Refinanced in January 2019 to a 15-year mortgage @ 3.875% with $22/month PMI. Paid extra every once in a while. Closing costs around $1700. We thought rates couldn't possibly get better.

Refinanced in January 2020 to a 15-year @ 3.25% with $0/month PMI as our extra payments + minor appreciation made the LTV 80%. No closing costs.

Now we have $200k left on what was originally a $228k mortgage + $12k down.

Now I kind of wish the January 2020 refinance was to a 30-year for extra liquidity. While we are in good shape and don't absolutely need the money, but an extra $500-600/month means we could fund taxable accounts, juice up our 529s, and with 100% certainty fund 2 Roth IRAs every year. And frankly, we save so much that a little more spending money wouldn't hurt for travel, clothes, etc. The only other debt we have is $25k car loan @ 3.25%. 401k maxed, HSA maxed, Roths maxed since we started 5 years ago every year, $2000/year to 529 and some in taxable as well.

We have no idea how long we will live here. Could be 3 more years, could be 20. EDIT: Spouse and I are in our early/mid 30s.

Questions:
1. Would it be worth it to do one final refinance back to a 30-year mortgage a year later, especially if I can get it for low (or no) cost?
2. Should I just pay the minimum on the current 15-year mortgage? Basically we'd pay off the house in a total of 17 years.
3. Is there a case to be made for paying everything off ASAP that I am missing?

Thanks for the time guys.
Last edited by sergio on Thu Apr 30, 2020 12:37 pm, edited 1 time in total.
amindu
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Re: Minor regret with a 15-year mortgage

Post by amindu »

You could probably refi to a 30 year no cost loan for the same if not better rate.
wfrobinette
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Re: Minor regret with a 15-year mortgage

Post by wfrobinette »

amindu wrote: Thu Apr 30, 2020 12:14 pm You could probably refi to a 30 year no cost loan for the same if not better rate.
I closed Saturday at 3% for 30 year fixed.
dandinsac
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Re: Minor regret with a 15-year mortgage

Post by dandinsac »

1. If you can find a no cost refinance at or below 3.25%, then I don’t see any downside to doing this. Having more flexibility is good.

2. Yes, pay the minimum and save the rest. Once the interest rate is low, it doesn’t make that much difference to prepay or save more in a taxable account. Once you have enough saved, you can pay it all off at once. I have 3.25% also and found that I only save a few months of payments by prepaying versus saving in a low interest account.

3. No. Paying it off faster does not increase your net worth much. Funding tax advantaged accounts is a much better way to go.
delamer
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Re: Minor regret with a 15-year mortgage

Post by delamer »

How old are you/spouse and your kids?
Carl53
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Re: Minor regret with a 15-year mortgage

Post by Carl53 »

You may be able to get a better rate than 3.25% but it looks to me that a lot of places offer higher refi rates than you currently are paying. It appears your original PI+PMI was about 1220/month, while you currently are paying about $1416 or less than $200 extra. If you can refi at 3.25% on a new 30 year term your payment will drop to about $870. While this is quite a bit less, I think I would be inclined to keep the loan and go minimum payment unless investment returns fail to recover in which case I'd be more for paying it down.
Topic Author
sergio
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Re: Minor regret with a 15-year mortgage

Post by sergio »

delamer wrote: Thu Apr 30, 2020 12:23 pm How old are you/spouse and your kids?
Spouse and I are in our mid 30s, one kid is 1.5, another is 11.
Valuethinker
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Re: Minor regret with a 15-year mortgage

Post by Valuethinker »

sergio wrote: Thu Apr 30, 2020 12:00 pm We originally bought a house in May 2018 with 5% down, $65/month PMI, 30year mortgage @ around 4.5% fixed. Made the equivalent 15-year monthly payment.

Refinanced in January 2019 to a 15-year mortgage @ 3.875% with $22/month PMI. Paid extra every once in a while. Closing costs around $1700. We thought rates couldn't possibly get better.

Refinanced in January 2020 to a 15-year @ 3.25% with $0/month PMI as our extra payments + minor appreciation made the LTV 80%. No closing costs.

Now we have $200k left on what was originally a $228k mortgage + $12k down.

Now I kind of wish the January 2020 refinance was to a 30-year for extra liquidity. While we are in good shape and don't absolutely need the money, but an extra $500-600/month means we could fund taxable accounts, juice up our 529s, and with 100% certainty fund 2 Roth IRAs every year. And frankly, we save so much that a little more spending money wouldn't hurt for travel, clothes, etc. The only other debt we have is $25k car loan @ 3.25%. 401k maxed, HSA maxed, Roths maxed since we started 5 years ago every year, $2000/year to 529 and some in taxable as well.

We have no idea how long we will live here. Could be 3 more years, could be 20.

Questions:
1. Would it be worth it to do one final refinance back to a 30-year mortgage a year later, especially if I can get it for low (or no) cost?
2. Should I just pay the minimum on the current 15-year mortgage? Basically we'd pay off the house in a total of 17 years.
3. Is there a case to be made for paying everything off ASAP that I am missing?

Thanks for the time guys.
You don't say your age, but I look at it that your current payments on principal are earning a guaranteed 3.25% pa after tax. That's better than any bond investment (safe) that you could make, now - and guaranteed.

There's enormous comfort in becoming debt free.

If inflation picks up then a longer mortgage term is better, generally. A long term fixed interest rate debt is an inflation hedge.
Topic Author
sergio
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Re: Minor regret with a 15-year mortgage

Post by sergio »

Carl53 wrote: Thu Apr 30, 2020 12:26 pm You may be able to get a better rate than 3.25% but it looks to me that a lot of places offer higher refi rates than you currently are paying. It appears your original PI+PMI was about 1220/month, while you currently are paying about $1416 or less than $200 extra. If you can refi at 3.25% on a new 30 year term your payment will drop to about $870. While this is quite a bit less, I think I would be inclined to keep the loan and go minimum payment unless investment returns fail to recover in which case I'd be more for paying it down.
Honestly I'd even be willing to pay a bit more (eg 3.5%) for the flexibility. This would be $20-25 more every month which wouldn't be the end of the world.

I realize now I should've include my age - spouse and I are in our early/mid 30s with a 1.5 and 11 year old.
delamer
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Re: Minor regret with a 15-year mortgage

Post by delamer »

A 15-year mortgage is a form of savings over and above a 30 year. It isn’t liquid, of course.

Have you considered reducing your liquid savings and sticking with the 15 year?
amindu
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Re: Minor regret with a 15-year mortgage

Post by amindu »

sergio wrote: Thu Apr 30, 2020 12:31 pm
delamer wrote: Thu Apr 30, 2020 12:23 pm How old are you/spouse and your kids?
Spouse and I are in our mid 30s, one kid is 1.5, another is 11.
you are young and have atleast a 25 year horizon, i would refi to 30 and put the extra in the market. Then at 60 use some of what you have saved up to pay of the mortgage so you enter retirement without any debt.
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F150HD
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Re: Minor regret with a 15-year mortgage

Post by F150HD »

No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
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White Coat Investor
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Re: Minor regret with a 15-year mortgage

Post by White Coat Investor »

F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
The borrowers but in the form of a higher rate.
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Olemiss540
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Re: Minor regret with a 15-year mortgage

Post by Olemiss540 »

You could get a 15yr loan for around 2.5% now. Honestly, I would stick with a 15 year loan just to build equity. This pinch you are feeling will be solved in a couple of years through (hopeful) salary raises but I can understand feeling uncertain.

Take a breath, get some equity in your house, and save as much as you can outside of your house while still enjoying life. There is no right answer without the benefits of hindsight and the decision has already been made.

Would be helpful if we knew your existing nest egg, income, monthly savings, expenses, etc. You only put 5% down and are paying PMI on a 200k house. From that alone I think some forced savings through home equity isnt such a bad thing.
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Olemiss540
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Re: Minor regret with a 15-year mortgage

Post by Olemiss540 »

White Coat Investor wrote: Thu Apr 30, 2020 1:02 pm
F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
The borrowers but in the form of a higher rate.
Yes, and many time appraisal (and possibly other items) can be waived due to the recency of the previous mortgage.
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Watty
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Re: Minor regret with a 15-year mortgage

Post by Watty »

sergio wrote: Thu Apr 30, 2020 12:35 pm spouse and I are in our early/mid 30s with a 1.5 and 11 year old.
Something to consider is that with a 15 year mortgage the house would be paid off by the time your 1.5 year (and any future kids) old starts college which could free up some cash-flow to pay for college costs. On the flip side with a 30 year mortgage you would have better cash flow when your 11 year old is in college.
dandinsac wrote: Thu Apr 30, 2020 12:22 pm 1. If you can find a no cost refinance at or below 3.25%, then I don’t see any downside to doing this. Having more flexibility is good.
+1

Until you know the interest rate and cost to refinance you cannot judge if it makes sense or not.

One thing to check on is that your current no-cost loan could require your to pay back some costs like the appraisal if you pay it off too soon. I have a no-cost HELOC that required some moderate repayment of costs like that if I closed it out within three years.

sergio wrote: Thu Apr 30, 2020 12:00 pm 3. Is there a case to be made for paying everything off ASAP that I am missing?
One thing that you be missing in your plans is that "stuff happens" and the lower payment for the 30 year mortgage would come in handy if there is something like a layoff, death, disability, etc. If the choice is even close I would go with the 30 year mortgage.
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sergio
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Re: Minor regret with a 15-year mortgage

Post by sergio »

F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
I could've gotten 2.5% for around $2,500 in closing costs. They had an offer for 3.25% with $0 in closing costs. I will likely pay more than $2,200 over the life of the loan in interest.

Appraisal was waived.
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celia
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Re: Minor regret with a 15-year mortgage

Post by celia »

I’d refinance again after the rate goes to 3% or lower. But don’t start over with another 30 years. Make it a 28 year loan. Every time we refinanced, we kept the final pay-off date the same. Who wants to be paying off a mortgage in retirement?
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sergio
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Re: Minor regret with a 15-year mortgage

Post by sergio »

celia wrote: Thu Apr 30, 2020 1:20 pm I’d refinance again after the rate goes to 3% or lower. But don’t start over with another 30 years. Make it a 28 year loan. Every time we refinanced, we kept the final pay-off date the same. Who wants to be paying off a mortgage in retirement?
Thanks for the suggestion.

Is there generally a "minimum acceptable time" after a refinance when one can refinance again? Let's say I refinance 4 months after this most recent refinance. Could that cause any issues? Would it be okay to go back to the same lender? I don't believe there was anything in the closing docs about this...
steve r
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Re: Minor regret with a 15-year mortgage

Post by steve r »

My thought is "how old are your kids" as I see you have a 529 plan. If it is possible to have house paid for when kids start college, that would be a sweet place to be. There are two college fin aid forms, and one does not consider equity in home. If yes, you might consider that a safe way to go. Banks are lending at low rates because other reasonably safe places for them to put money earns 3.25 percent or less. This applies to all of us. If you go this option, you might be able to be a touch more aggressive with your maxed out retirement accounts given you have more equity in home (over time).

In 15 years you would have no mortgage. Without having done the exact math recently, my guess is if you took the monthly savings from the 30 with a 3/8 higher rate and put it a bank it would have to earn over 5 percent to reach the balance of your 30 year mortgage in 15 years if you choose to do so. That 3/8 higher rate forces the need for a higher return with money you put in the bank.

This also depends on your need for liquidity.
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Kruser64
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Re: Minor regret with a 15-year mortgage

Post by Kruser64 »

celia wrote: Thu Apr 30, 2020 1:20 pm Who wants to be paying off a mortgage in retirement?
Me. Happily. Back to that discussion again for the 1,000th time, doh. :oops:

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Carl53
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Re: Minor regret with a 15-year mortgage

Post by Carl53 »

sergio wrote: Thu Apr 30, 2020 12:35 pm
Carl53 wrote: Thu Apr 30, 2020 12:26 pm You may be able to get a better rate than 3.25% but it looks to me that a lot of places offer higher refi rates than you currently are paying. It appears your original PI+PMI was about 1220/month, while you currently are paying about $1416 or less than $200 extra. If you can refi at 3.25% on a new 30 year term your payment will drop to about $870. While this is quite a bit less, I think I would be inclined to keep the loan and go minimum payment unless investment returns fail to recover in which case I'd be more for paying it down.
Honestly I'd even be willing to pay a bit more (eg 3.5%) for the flexibility. This would be $20-25 more every month which wouldn't be the end of the world.

I realize now I should've include my age - spouse and I are in our early/mid 30s with a 1.5 and 11 year old.
We don't know your family income nor tax bracket nor state tax situation. If things are pretty tight, consider lightening your load by paying off the car loan (likely $500/month). Consider reducing your 401k from the max by up to the amount that would eliminate any of your employer's matching contributions or if per chance any further reductions would drop you into the 12% federal tax bracket. If you start flirting with the 12% bracket, consider reducing the Roth's for a year. Dave Ramsey advocates would say eat beans and rice and get the car paid off or sell it. I'd rather say for you to rejigger your cash flow to get rid of the car debt, hopefully in a year or so. Once it is paid off, build up a little taxable savings (for the next vehicle or emergency) and then pick up your retirement savings at a higher rate. You are doing well, you are young and have a lot going for you. Keep some of your money for you and the family to enjoy as the kids are only little for a short while.
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F150HD
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Re: Minor regret with a 15-year mortgage

Post by F150HD »

sergio wrote: Thu Apr 30, 2020 1:11 pm
F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
I could've gotten 2.5% for around $2,500 in closing costs. They had an offer for 3.25% with $0 in closing costs. I will likely pay more than $2,200 over the life of the loan in interest.

Appraisal was waived.
yes your point is valid.

I always feel taken advantage of w/ appraisals for what they charge.
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Nate79
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Re: Minor regret with a 15-year mortgage

Post by Nate79 »

You can borrow on margin at IB for <1.55% today. Would you borrow to invest? That's effectively what you are proposing and even for a higher interest rate.
michaeljc70
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Re: Minor regret with a 15-year mortgage

Post by michaeljc70 »

White Coat Investor wrote: Thu Apr 30, 2020 1:02 pm
F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
The borrowers but in the form of a higher rate.
Of course. There is no free lunch. I cannot tell you how many times acquaintances, family and friends told me they refinanced and it cost them nothing. If you said it cost you nothing out of pocket, then I'd agree.
Valueinvestor2
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Re: Minor regret with a 15-year mortgage

Post by Valueinvestor2 »

sergio wrote: Thu Apr 30, 2020 12:00 pm We originally bought a house in May 2018 with 5% down, $65/month PMI, 30year mortgage @ around 4.5% fixed. Made the equivalent 15-year monthly payment.

Refinanced in January 2019 to a 15-year mortgage @ 3.875% with $22/month PMI. Paid extra every once in a while. Closing costs around $1700. We thought rates couldn't possibly get better.

Refinanced in January 2020 to a 15-year @ 3.25% with $0/month PMI as our extra payments + minor appreciation made the LTV 80%. No closing costs.

Now we have $200k left on what was originally a $228k mortgage + $12k down.

Now I kind of wish the January 2020 refinance was to a 30-year for extra liquidity. While we are in good shape and don't absolutely need the money, but an extra $500-600/month means we could fund taxable accounts, juice up our 529s, and with 100% certainty fund 2 Roth IRAs every year. And frankly, we save so much that a little more spending money wouldn't hurt for travel, clothes, etc. The only other debt we have is $25k car loan @ 3.25%. 401k maxed, HSA maxed, Roths maxed since we started 5 years ago every year, $2000/year to 529 and some in taxable as well.

We have no idea how long we will live here. Could be 3 more years, could be 20. EDIT: Spouse and I are in our early/mid 30s.

Questions:
1. Would it be worth it to do one final refinance back to a 30-year mortgage a year later, especially if I can get it for low (or no) cost?
2. Should I just pay the minimum on the current 15-year mortgage? Basically we'd pay off the house in a total of 17 years.
3. Is there a case to be made for paying everything off ASAP that I am missing?

Thanks for the time guys.
Personally I don’t see a scenario why anyone would go with a 15 year mortgage. Rates are historically as low as they get. Our government is printing money faster than ever before. My suggestion (what I did) is refinance for 30 years. When inflation is through the roof in 3-5 years from all this printing and rates are back to normal, you will literally be paid to have a mortgage. I understand some people want to feel debt free but if you can have any amount of self control, invest the difference today, You will be much better off in the future. The 30 year gives you more flexibility and puts you in a scenario in the future where you will be getting paid to own a home. What’s not to love about that?
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Re: Minor regret with a 15-year mortgage

Post by seawolf21 »

michaeljc70 wrote: Thu Apr 30, 2020 7:24 pm
White Coat Investor wrote: Thu Apr 30, 2020 1:02 pm
F150HD wrote: Thu Apr 30, 2020 12:58 pm
No closing costs.
everytime I read these threads I scratch my head. who paid for the appraisal? who paid the title company?
The borrowers but in the form of a higher rate.
Of course. There is no free lunch. I cannot tell you how many times acquaintances, family and friends told me they refinanced and it cost them nothing. If you said it cost you nothing out of pocket, then I'd agree.
Those of us who write regularity quote "no cost" here have a very clear understanding of what it means and why the focus on no-cost.

Back to OP question, I think OP can get 3.25 no cost today on a 30 year. If the reason for this thread is to look into a 30 year for flexibility no need to wait. OP can apply today.
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