Another refinance thread..

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Another refinance thread..

Post by m@ver1ck » Fri Jul 17, 2020 10:17 am

I’ve got a 15yr mortgage at 2.75% which matures in 2028. Home price around 1.1M, 230K outstanding.

Thinking of refinancing for a 30yr term since rates are low - if I can get 30yrs at 2.75%.
Not planning on doing a cash-out refinance.

Reasoning: improved cash flow to derisk and investments.

Also - if things get really bad and I lose my job I’ll have lower monthly expenses.
OTOH, if things go really bad and I have my job, I could potentially buy another property and rent this one out.

Another reason: I need to buy a place for my parents to live - and I can use the extra cash flow to fund their mortgage. This property would be in New Zealand.

I have around $350K stocks and bonds in Taxable. And 1.1M in retirement accounts. I make around 200K-300K a year.

Thoughts? Worth a call to LoanDepot?

Worst case, I could write a check and pay the loan off in 2028 if none of the risks came to pass.
Last edited by m@ver1ck on Sat Jul 18, 2020 10:03 am, edited 3 times in total.

02nz
Posts: 5436
Joined: Wed Feb 21, 2018 3:17 pm

Re: Another refinance thread..

Post by 02nz » Fri Jul 17, 2020 10:24 am

I would refinance to get a lower rate. I would not refinance to borrow to invest.

lakpr
Posts: 5810
Joined: Fri Mar 18, 2011 9:59 am

Re: Another refinance thread..

Post by lakpr » Fri Jul 17, 2020 12:06 pm

Note that the interest paid on refinanced amount is NOT tax-deductible after the passage of Tax Cuts and Jobs Act. So even if you are able to get a 2.75% for 30 years (the rates have shot up dramatically over the past 2 weeks), that would be an after-tax rate of 2.75%.

User avatar
grabiner
Advisory Board
Posts: 27465
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Another refinance thread..

Post by grabiner » Fri Jul 17, 2020 1:08 pm

lakpr wrote:
Fri Jul 17, 2020 12:06 pm
Note that the interest paid on refinanced amount is NOT tax-deductible after the passage of Tax Cuts and Jobs Act. So even if you are able to get a 2.75% for 30 years (the rates have shot up dramatically over the past 2 weeks), that would be an after-tax rate of 2.75%.
The interest on a cash-out refinance is not deductible (unless the cash-out is used to improve the home), but the interest on the original loan amount remains deductible if you itemize. (For a married couple, a $230K mortgage won't allow you to itemize deductions unless you donate a significant amount to charity.)
Wiki David Grabiner

User avatar
anon_investor
Posts: 2833
Joined: Mon Jun 03, 2019 1:43 pm

Re: Another refinance thread..

Post by anon_investor » Fri Jul 17, 2020 1:10 pm

m@ver1ck wrote:
Fri Jul 17, 2020 10:17 am
I’ve got a 15yr mortgage which matures in 2028. Home price around 1.1M, 230K outstanding.

Thinking of refinancing for a 30yr term since rates are low - if I can get 30yrs at 2.75%.

Reasoning: improved cash flow for investments.

Also - if things get really bad and I lose my job I’ll have lower monthly expenses.
OTOH, if things go really bad and I have my job, I could potentially buy another property and rent this one out.

Another reason: I need to buy a place for my parents to live - and I can use the extra cash flow to fund their mortgage. This property would be in New Zealand.

I have around $350K stocks and bonds in Taxable. And 1.1M in retirement accounts. I make around 200K-300K a year.

Thoughts? Worth a call to LoanDepot?
What is your current mortgage interest rate?

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Fri Jul 17, 2020 7:41 pm

anon_investor wrote:
Fri Jul 17, 2020 1:10 pm
m@ver1ck wrote:
Fri Jul 17, 2020 10:17 am
I’ve got a 15yr mortgage which matures in 2028. Home price around 1.1M, 230K outstanding.

Thinking of refinancing for a 30yr term since rates are low - if I can get 30yrs at 2.75%.

Reasoning: improved cash flow for investments.

Also - if things get really bad and I lose my job I’ll have lower monthly expenses.
OTOH, if things go really bad and I have my job, I could potentially buy another property and rent this one out.

Another reason: I need to buy a place for my parents to live - and I can use the extra cash flow to fund their mortgage. This property would be in New Zealand.

I have around $350K stocks and bonds in Taxable. And 1.1M in retirement accounts. I make around 200K-300K a year.

Thoughts? Worth a call to LoanDepot?
What is your current mortgage interest rate?
2.75%

999
Posts: 35
Joined: Sun Feb 23, 2020 9:10 am

Re: Another refinance thread..

Post by 999 » Fri Jul 17, 2020 8:50 pm

If I were you my age would be a big determining factor if I was going to be adding 15 years to the house note.

babystep
Posts: 216
Joined: Tue Apr 09, 2019 9:44 am

Re: Another refinance thread..

Post by babystep » Fri Jul 17, 2020 9:44 pm

m@ver1ck wrote:
Fri Jul 17, 2020 10:17 am
I’ve got a 15yr mortgage at 2.75% which matures in 2028. Home price around 1.1M, 230K outstanding.

Thinking of refinancing for a 30yr term since rates are low - if I can get 30yrs at 2.75%.

Reasoning: improved cash flow to derisk and investments.

Also - if things get really bad and I lose my job I’ll have lower monthly expenses.
OTOH, if things go really bad and I have my job, I could potentially buy another property and rent this one out.

Another reason: I need to buy a place for my parents to live - and I can use the extra cash flow to fund their mortgage. This property would be in New Zealand.

I have around $350K stocks and bonds in Taxable. And 1.1M in retirement accounts. I make around 200K-300K a year.

Thoughts? Worth a call to LoanDepot?
Why not? 30 year 2.75 would be better. Looks like you are not doing cash-out but if you do then check carefully about what interest is deductible.

https://www.rocketmortgage.com/learn/re ... deductions

Bonds in taxable?

seawolf21
Posts: 700
Joined: Tue Aug 05, 2014 7:33 am

Re: Another refinance thread..

Post by seawolf21 » Fri Jul 17, 2020 10:11 pm

grabiner wrote:
Fri Jul 17, 2020 1:08 pm
lakpr wrote:
Fri Jul 17, 2020 12:06 pm
Note that the interest paid on refinanced amount is NOT tax-deductible after the passage of Tax Cuts and Jobs Act. So even if you are able to get a 2.75% for 30 years (the rates have shot up dramatically over the past 2 weeks), that would be an after-tax rate of 2.75%.
The interest on a cash-out refinance is not deductible (unless the cash-out is used to improve the home), but the interest on the original loan amount remains deductible if you itemize. (For a married couple, a $230K mortgage won't allow you to itemize deductions unless you donate a significant amount to charity.)
+1. Refinance of home acquisition debt remains deductible.

babystep
Posts: 216
Joined: Tue Apr 09, 2019 9:44 am

Re: Another refinance thread..

Post by babystep » Fri Jul 17, 2020 10:26 pm

seawolf21 wrote:
Fri Jul 17, 2020 10:11 pm
grabiner wrote:
Fri Jul 17, 2020 1:08 pm
lakpr wrote:
Fri Jul 17, 2020 12:06 pm
Note that the interest paid on refinanced amount is NOT tax-deductible after the passage of Tax Cuts and Jobs Act. So even if you are able to get a 2.75% for 30 years (the rates have shot up dramatically over the past 2 weeks), that would be an after-tax rate of 2.75%.
The interest on a cash-out refinance is not deductible (unless the cash-out is used to improve the home), but the interest on the original loan amount remains deductible if you itemize. (For a married couple, a $230K mortgage won't allow you to itemize deductions unless you donate a significant amount to charity.)
+1. Refinance of home acquisition debt remains deductible.
It won't help OP. The interest is less than $1000 per month which is less than 14,400 assuming MFJ.

Also, one has to look at the current outstanding balance just before the refinancing as explained here:
https://www.irs.gov/pub/irs-pdf/p936.pdf

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Sat Jul 18, 2020 10:04 am

babystep wrote:
Fri Jul 17, 2020 9:44 pm
Bonds in taxable?
It's CDs that I have in Taxable, not VBTLX. It's about 60K total, And at the current 1% interest rate, taxes are negligible.

seawolf21
Posts: 700
Joined: Tue Aug 05, 2014 7:33 am

Re: Another refinance thread..

Post by seawolf21 » Sat Jul 18, 2020 10:18 am

babystep wrote:
Fri Jul 17, 2020 10:26 pm
seawolf21 wrote:
Fri Jul 17, 2020 10:11 pm
grabiner wrote:
Fri Jul 17, 2020 1:08 pm
lakpr wrote:
Fri Jul 17, 2020 12:06 pm
Note that the interest paid on refinanced amount is NOT tax-deductible after the passage of Tax Cuts and Jobs Act. So even if you are able to get a 2.75% for 30 years (the rates have shot up dramatically over the past 2 weeks), that would be an after-tax rate of 2.75%.
The interest on a cash-out refinance is not deductible (unless the cash-out is used to improve the home), but the interest on the original loan amount remains deductible if you itemize. (For a married couple, a $230K mortgage won't allow you to itemize deductions unless you donate a significant amount to charity.)
+1. Refinance of home acquisition debt remains deductible.
It won't help OP. The interest is less than $1000 per month which is less than 14,400 assuming MFJ.

Also, one has to look at the current outstanding balance just before the refinancing as explained here:
https://www.irs.gov/pub/irs-pdf/p936.pdf
I agree. My post was to reiterate that what lakpr posted is factually inaccurate in stating that interest from a refinance is no longer deductible. Yes there are other conditions that must be met for a taxpayer to deduct mortgage interest but the mere act of refinancing a mortgage whose interest was deductible does not make the interest from the new loan non-deductible.

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Sat Jul 18, 2020 12:21 pm

Doesnt matter about deduction - the amounts are below the itemizatio threshold for me anyway.

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Thu Jul 30, 2020 9:32 pm

delete.
Last edited by m@ver1ck on Fri Jul 31, 2020 12:52 am, edited 1 time in total.

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Fri Jul 31, 2020 12:52 am

Got a 2.875% rate on LenderFi with $0 cost. Going for it. Loan amount 200K on a 1.1M property.

I guess would be nice to be able to say that the home is paid off so it does sadden me a little - defeat? but the fact that is, the mortgage payment will now be just about 50% of the total housing cost. The property tax + insurance will now be about $800 and P&I also $800.

I figure this helps get D/I ratio way down - so if other real estate opportunities were to arise in the next 3-5 years, I would be ready to make the move.

The extra $2K in 'savings' would go towards shoring up EFs and then mega backdoor roth IRA.

Income expected to be around 350K this year.

Just gives me more optionality and flexibility. Probably won't make any difference either way.

Any thoughts?

babystep
Posts: 216
Joined: Tue Apr 09, 2019 9:44 am

Re: Another refinance thread..

Post by babystep » Fri Jul 31, 2020 2:34 am

m@ver1ck wrote:
Fri Jul 31, 2020 12:52 am
Got a 2.875% rate on LenderFi with $0 cost. Going for it. Loan amount 200K on a 1.1M property.

I guess would be nice to be able to say that the home is paid off so it does sadden me a little - defeat? but the fact that is, the mortgage payment will now be just about 50% of the total housing cost. The property tax + insurance will now be about $800 and P&I also $800.

I figure this helps get D/I ratio way down - so if other real estate opportunities were to arise in the next 3-5 years, I would be ready to make the move.

The extra $2K in 'savings' would go towards shoring up EFs and then mega backdoor roth IRA.

Income expected to be around 350K this year.

Just gives me more optionality and flexibility. Probably won't make any difference either way.

Any thoughts?
I would do mega backdoor roth IRA first.

Outer Marker
Posts: 737
Joined: Sun Mar 08, 2009 8:01 am

Re: Another refinance thread..

Post by Outer Marker » Fri Jul 31, 2020 7:50 am

m@ver1ck wrote:
Fri Jul 31, 2020 12:52 am
Got a 2.875% rate on LenderFi with $0 cost. Going for it. Loan amount 200K on a 1.1M property.

The extra $2K in 'savings' would go towards shoring up EFs and then mega backdoor roth IRA.

Income expected to be around 350K this year.

Just gives me more optionality and flexibility. Probably won't make any difference either way.

Any thoughts?
WHY??? You're increasing your interest rate, and putting extra money into an EF yielding 1% vs. retiring a mtge that's costing 2.875% At that income level and with that small a mtge, I'd retire the debt and consider my paid off house to be the ultimate EF. If you want to be aggressive and use leverage, maybe backdoor roth -- but at your income level your should be able to do that in any event. This seems like tinkering for no good reason.

Flyer24
Moderator
Posts: 1833
Joined: Sun Apr 08, 2018 4:21 pm

Re: Another refinance thread..

Post by Flyer24 » Fri Jul 31, 2020 8:26 am

I wouldn't do it. You were already on track to be mortgage-free in only 8 years. Stretching it out to 30 is a big difference. The only reason that I would stretch out my mortgage would be cash flow problems. You make plenty of income so this doesn't really make sense. I wouldn't borrow to invest.

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Fri Jul 31, 2020 10:23 am

Yeah - I should try to be more clear in my mind why I'm doing this and writing and conversing with this group helps:

Ultimately, it buys me flexibility for very little spend - since I plan to keep repaying at the rate I'm paying today (3500/month) even though at the new mortgage rate would be 2000/month.

a) We're looking to move in a few years anyway - anytime we find something better/bigger that's affordable. Refinancing now puts me at a low enough debt to income ratio that it'll be easy to get a second mortgage.
b) Could become accidental LandLords - but that's not the plan. Still - that option would exist.
c) If things go south with Covid, reducing the size of monthly payments increases the duration of my current 40K CD EF - from 6 months to 8. Arguably that is a bogus reason. So strike that.
d) I'm looking to buy my parents an apartment in New Zealand. If I need to take a mortgage out for them, probably be better to have the cash flow. Although realistically I might just sell stocks from my Taxable and send the money there.

Yeah - so ultimately optionality. It's a 0 cost mortgage.

I made the mistake of moving too much to 529s and Mega backDoor the past few years. Funds in taxable would have permitted me to just pay off the existing home, and still have enough to deal with a) above (down payment on bigger home) + c) and possible d).

Context: W2 shows 330K last year and maybe this year too. Prior to that, it's been about 260K, and around 200K/yr before that in the past years..
Retirement: 1.1M, 529s: 200K, Taxable: 300K

User avatar
anon_investor
Posts: 2833
Joined: Mon Jun 03, 2019 1:43 pm

Re: Another refinance thread..

Post by anon_investor » Fri Jul 31, 2020 3:20 pm

m@ver1ck wrote:
Fri Jul 31, 2020 10:23 am
Yeah - I should try to be more clear in my mind why I'm doing this and writing and conversing with this group helps:

Ultimately, it buys me flexibility for very little spend - since I plan to keep repaying at the rate I'm paying today (3500/month) even though at the new mortgage rate would be 2000/month.

a) We're looking to move in a few years anyway - anytime we find something better/bigger that's affordable. Refinancing now puts me at a low enough debt to income ratio that it'll be easy to get a second mortgage.
b) Could become accidental LandLords - but that's not the plan. Still - that option would exist.
c) If things go south with Covid, reducing the size of monthly payments increases the duration of my current 40K CD EF - from 6 months to 8. Arguably that is a bogus reason. So strike that.
d) I'm looking to buy my parents an apartment in New Zealand. If I need to take a mortgage out for them, probably be better to have the cash flow. Although realistically I might just sell stocks from my Taxable and send the money there.

Yeah - so ultimately optionality. It's a 0 cost mortgage.

I made the mistake of moving too much to 529s and Mega backDoor the past few years. Funds in taxable would have permitted me to just pay off the existing home, and still have enough to deal with a) above (down payment on bigger home) + c) and possible d).

Context: W2 shows 330K last year and maybe this year too. Prior to that, it's been about 260K, and around 200K/yr before that in the past years..
Retirement: 1.1M, 529s: 200K, Taxable: 300K
OP, you probably could have waited a little bit as the rates only continue to fall, and ended up with a lower rate than your existing rate at not cost and not paid extra to your mortgage while you waited to have more cash on hand. It makese little sense to increase your interest rate now, when you can likely get a better deal later (and close quickly < 30 days) and it sounds like you do not necessarily need the extra cash flow immediately.

Topic Author
m@ver1ck
Posts: 324
Joined: Fri Sep 14, 2018 2:18 pm

Re: Another refinance thread..

Post by m@ver1ck » Fri Jul 31, 2020 8:19 pm

I’ve not closed yet - so yes, I can wait.

Post Reply