Should I refinance my mortgage?

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Topic Author
SmokeyAbe
Posts: 100
Joined: Sun Feb 07, 2021 8:25 am

Should I refinance my mortgage?

Post by SmokeyAbe »

Greetings Bogleheads,

I came from a very poor family & have a personal aversion to debt. My question here regards the very last piece I have, my mortgage. I got a 15 year @ 3.99% in 2016 and have ~$72k remaining. I've been paying down extra, knocking off around $1,650 in principal monthly. By my math, I should have the house paid off in under 4 years. Knowing what I know now about investing, debt, & inflation, should I refinance the remaining $72k to a new 15 year mortgage at a low rate, paying only what's necessary & investing the difference, or should I continue down my current path & pay it off in 4 years? To my knowledge, there's no such thing as a 5 year mortgage. :annoyed

Another question I suppose is which of the 2 strategies would cause me to pay more in interest?

Thanks!
Topic Author
SmokeyAbe
Posts: 100
Joined: Sun Feb 07, 2021 8:25 am

Re: Should I refinance my mortgage?

Post by SmokeyAbe »

Bump. (Please?)
bluebolt
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Joined: Sat Jan 14, 2017 8:01 am

Re: Should I refinance my mortgage?

Post by bluebolt »

It appears that the lowest rates are behind us. Also, your low balance would probably prevent you from getting the lowest rates available.

At this point a lot of your payment is going toward principal, so there is diminishing return to refinance.
monet60122
Posts: 3
Joined: Wed Jun 26, 2019 9:53 am

Re: Should I refinance my mortgage?

Post by monet60122 »

Just to answer the question, a refinance to a lower rate will cause you to pay less interest overall. I refinanced in 2020 and will save a lot of interest, but I just bought my home 3 years ago.

However, you shouldn't just look at the interest portion of the equation. You also have to factor in how much in fees you will be paying to refinance the mortgage. It also depends on how much your rate will drop from 3.99%. A 1% drop over just the next 4 years may not save you enough interest to make it worthwhile, certainly not when you factor in the fees. If you have really good credit and can get a prime rate, and/or your lender isn't charging fees, it may make it worth your while to refinance. A glance at bankrate.com has fees ranging from $0 to $5,455, so they vary wildly. If debt is a factor for you, and you have done so well so far paying down the loan, I'd lean towards sticking with your current plan of putting everything you can to paying it off and then focus on investing when you're done.
Mike Scott
Posts: 3579
Joined: Fri Jul 19, 2013 2:45 pm

Re: Should I refinance my mortgage?

Post by Mike Scott »

There are shorter term mortgages; often listed as 7 or 10 year ARMs. You would have to do some price shopping to see if it makes enough difference for you. We did a refi to 30 years last fall and intend to let it run out it's term but you are a lot closer to being paid off so that may balance the scales in favor of doing whatever you can to just pay it asap. Can you just pay it off now and then redirect the payments back to replenishing whatever stash the money came from?
Jimmy21
Posts: 46
Joined: Sun Jan 28, 2018 2:36 pm

Re: Should I refinance my mortgage?

Post by Jimmy21 »

You could shop around for a mortgage and see what they can offer you. Its impossible to crunch the numbers if you dont know what those numbers are.

I think itll really depend on how cheap you can get the fees. With such a low balance and time remaining, the lowest possible interest rate possible isnt as critical as getting the lowest fees possible.



I think your best option is to keep your current mortgage and quit paying extra. Put the extra money in to investments. Though, this probably depends on how old you are. If you are ready to retire. Paying down your current mortgage is probably the best bet. If you are in your 30s, you should maximize your investing
Topic Author
SmokeyAbe
Posts: 100
Joined: Sun Feb 07, 2021 8:25 am

Re: Should I refinance my mortgage?

Post by SmokeyAbe »

Jimmy21 wrote: Wed Apr 14, 2021 11:40 am You could shop around for a mortgage and see what they can offer you. Its impossible to crunch the numbers if you dont know what those numbers are.

I think itll really depend on how cheap you can get the fees. With such a low balance and time remaining, the lowest possible interest rate possible isnt as critical as getting the lowest fees possible.



I think your best option is to keep your current mortgage and quit paying extra. Put the extra money in to investments. Though, this probably depends on how old you are. If you are ready to retire. Paying down your current mortgage is probably the best bet. If you are in your 30s, you should maximize your investing
I'm 36, but I have 4 children and was initially hoping to pay for higher education with the money I was no longer putting into the mortgage. I've since opened 529s for them, but the increased cash flow when it all goes down would be nice.
demdeah26
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Joined: Mon Mar 29, 2021 8:26 am

Re: Should I refinance my mortgage?

Post by demdeah26 »

bluebolt wrote: Wed Apr 14, 2021 10:58 am It appears that the lowest rates are behind us. Also, your low balance would probably prevent you from getting the lowest rates available.

At this point a lot of your payment is going toward principal, so there is diminishing return to refinance.
This. With that balance rates probably won't be aggressively lower to offset closing costs. Plus the majority of your payment at this point is already going to principal rather than interest. I would just keep doing what you're doing.
260chrisb
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Joined: Wed Apr 28, 2010 7:26 pm

Re: Should I refinance my mortgage?

Post by 260chrisb »

SmokeyAbe wrote: Wed Apr 14, 2021 10:52 am Bump. (Please?)
Sorry to ask; what does this mean?
Jimmy21
Posts: 46
Joined: Sun Jan 28, 2018 2:36 pm

Re: Should I refinance my mortgage?

Post by Jimmy21 »

260chrisb wrote: Wed Apr 14, 2021 2:52 pm
SmokeyAbe wrote: Wed Apr 14, 2021 10:52 am Bump. (Please?)
Sorry to ask; what does this mean?
It means his thread was getting on to the second page of the message board where no one would see it. He posted in his own thread to give it some activity and bring it to the front page.
260chrisb
Posts: 1281
Joined: Wed Apr 28, 2010 7:26 pm

Re: Should I refinance my mortgage?

Post by 260chrisb »

Jimmy21 wrote: Wed Apr 14, 2021 3:02 pm
260chrisb wrote: Wed Apr 14, 2021 2:52 pm
SmokeyAbe wrote: Wed Apr 14, 2021 10:52 am Bump. (Please?)
Sorry to ask; what does this mean?
It means his thread was getting on to the second page of the message board where no one would see it. He posted in his own thread to give it some activity and bring it to the front page.
Thanks! :)
NabSh
Posts: 377
Joined: Fri Dec 25, 2020 11:09 am
Location: USA

Re: Should I refinance my mortgage?

Post by NabSh »

So if I reading correctly you have 12 years left and your current rate is 3.99%. I think you have following options.

1) continue with current mortgage. Do not pay extra
2) continue with current mortgage pay extra
3) Refinance to a lower rate 15 year. I think current 15 year refinance is 2.5
4) Refinance to a shorter term. 10 year I think you can can try to find one.

I would try with option 3 first. Yes it does reset your term. But with lower rate and since your balance in smaller too, you can basically continue to pay what you are paying now. Please do the math at bankrate.com first.
Question : is this home going to be your forever home? Or you plan to upgrade in 10 years or less?

I suggest you put your would be savings in investment and build some assets beside your home equity. I had been putting most of my savings in my first home. Until market crashed in 2007 and in 2009 my DW found a new dream home. I sold my old home at a loss to buy a new home.

Alot of this depends on stability of your job and economy/ city / state/industry you work in.



SmokeyAbe wrote: Tue Apr 13, 2021 9:42 pm Greetings Bogleheads,

I came from a very poor family & have a personal aversion to debt. My question here regards the very last piece I have, my mortgage. I got a 15 year @ 3.99% in 2016 and have ~$72k remaining. I've been paying down extra, knocking off around $1,650 in principal monthly. By my math, I should have the house paid off in under 4 years. Knowing what I know now about investing, debt, & inflation, should I refinance the remaining $72k to a new 15 year mortgage at a low rate, paying only what's necessary & investing the difference, or should I continue down my current path & pay it off in 4 years? To my knowledge, there's no such thing as a 5 year mortgage. :annoyed

Another question I suppose is which of the 2 strategies would cause me to pay more in interest?

Thanks!
Topic Author
SmokeyAbe
Posts: 100
Joined: Sun Feb 07, 2021 8:25 am

Re: Should I refinance my mortgage?

Post by SmokeyAbe »

NabSh wrote: Wed Apr 14, 2021 4:25 pm So if I reading correctly you have 12 years left and your current rate is 3.99%. I think you have following options.

1) continue with current mortgage. Do not pay extra
2) continue with current mortgage pay extra
3) Refinance to a lower rate 15 year. I think current 15 year refinance is 2.5
4) Refinance to a shorter term. 10 year I think you can can try to find one.

I would try with option 3 first. Yes it does reset your term. But with lower rate and since your balance in smaller too, you can basically continue to pay what you are paying now. Please do the math at bankrate.com first.
Question : is this home going to be your forever home? Or you plan to upgrade in 10 years or less?

I suggest you put your would be savings in investment and build some assets beside your home equity. I had been putting most of my savings in my first home. Until market crashed in 2007 and in 2009 my DW found a new dream home. I sold my old home at a loss to buy a new home.

Alot of this depends on stability of your job and economy/ city / state/industry you work in.
This is my forever home. I currently have 10 years left on the existing mortgage. I've been thinking of option 3 as well in order to free up cash to increase 529 investments for my 4 kids.The other option is if I did a cash-out refi of $200k, it would be the same payment as I'm making now & can use that to boost all the accounts.
jpelder
Posts: 1106
Joined: Mon Jan 26, 2015 2:56 pm
Location: Concord, NC

Re: Should I refinance my mortgage?

Post by jpelder »

Most of my usual quote recommendations won't even loan less than $100,000. So a standard refi probably isn't going to be possible or productive.

If you need to save up for the kids' college, it would probably be better to stop paying extra on the mortgage and instead save that money in the 529s. That way, it will have more time to grow. Then again, 4% guaranteed return is pretty good, and you can free up a bunch of cashflow in just 4 years...
Golf maniac
Posts: 1359
Joined: Wed Dec 27, 2017 1:02 pm
Location: Florida

Re: Should I refinance my mortgage?

Post by Golf maniac »

The least interest paid will be to keep the existing loan and make extra payments to pay off loan in under 4 years. Each extra principal payment will reduce your interest charges. For your children’s 529 accounts, it really depends on how many years until college. If they are 10 years or more away from college I would pay off mortgage first then save for college. If college is within a few years then you will probably need to stop making the extra mortgage payments and put that money into college savings. I would not refinance into a $200k 15 year mortgage to fund college. That is just my personal belief that parents should not go into debt for kids college.
LittleMaggieMae
Posts: 2569
Joined: Mon Aug 12, 2019 9:06 pm

Re: Should I refinance my mortgage?

Post by LittleMaggieMae »

One of the reasons to take a low interest mortgage that gives you a reasonable payment for your income is so that you can save for other things during the decade or two or three that you are paying off your mortgage. Remember all that "blah blah blah" about how wonderful and powerful compound interest is? Having a mostly fixed housing expense lets you do other things with any extra income you have - for years and years and years.

Besides, If you were so debt adverse - why didn't you spend 10 years saving up so you could pay cash for your house? Why did you take a mortgage? What purpose did it serve if you have to belt tighten and scrimp and save for the other things you want in life? Maybe not owning a house/mortgage would have been the way to go? <-- those are rhetorical questions I don't really want to know the answers. But, maybe they will help you figure out your current situation. :)

I think doing a refi of your current low balance mortgage will cost more than it's worth. Lenders aren't really looking to write loans for under 100K. Of course it doesn't hurt to shop around and see if this is true for your area and situation.

I say, If you have other saving goals - take advantage of your low interest mortgage - and stop paying extra on the principal... put that money to work going towards your saving goals (retirement, kids education, what ever).

If you just make the required monthly payment on your mortgage - how many more payments (years) til it's paid off? I'm gonna guess 8 years or less. If it was me I'd be using the extra principal payment money for something other than paying off the house. How much of a difference does it make if your house is paid off in 4 years or 8 years?

The thing is - there's nothing that says you can't fund the kid's college funds for the next 4 years and then change course and pay down/or pay off the mortgage. You kids college funds got 4 years of "growth" they wouldn't get if you didn't put in money. Also remember -- It doesn't make sense to pay off a 3.99% loan only to turn around and take out a higher interest loan(s) to put your kids thru college. Your low interest mortgage is a "tool" use it.
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