Refinance or pay off mortgage?

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Topic Author
BeanCity
Posts: 58
Joined: Thu Oct 25, 2018 1:13 pm

Refinance or pay off mortgage?

Post by BeanCity » Mon Sep 09, 2019 12:03 pm

30 years old/married no kids/maxing out all IRA's, HSAs, contributing $4K/month to taxable index funds

I currently have a mortgage rate of 4.25% on $300,000 loan. I have been seeing lots of adds for lower mortgage rates recently. If I were to talk to my mortgage company (or another one) about refinancing to get a lower loan, are there costs associated?

I plan on moving out of my house in the next two years, and will probably buy a slightly more expensive house (lets say $100k more expensive).

Is it worth it to refinance to a lower mortgage rate, knowing that I will be leaving in two years?

I could also potentially pay off the mortgage in its entirety immediately using money sitting in a money market making 2%. Would it be worth it to pay off the mortgage early on this one to capture the 4.25%, or wait until the next house and just pay that off completely?

chevca
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Re: Refinance or pay off mortgage?

Post by chevca » Mon Sep 09, 2019 12:15 pm

I probably wouldn't refinance in your situation. If moving that soon, you would want the lowest closing costs possible, or lender credits that way, and that may not lower your rate enough to make it worthwhile. But, looking around can't hurt any. There may be good deals out there.

I would hang onto your cash for the next house. That will give you a lot more flexibility and options when looking for and buying the next one rather than having it all in the current house and everything depending on the sale of that one. Having the cash on hand will make that less stressful, IMO.

barnaclebob
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Re: Refinance or pay off mortgage?

Post by barnaclebob » Mon Sep 09, 2019 12:19 pm

Yes, there would be costs associated. Usually those costs can be rolled into the loan or offset via a higher interest rate.

No, I wouldn't refinance if you plan on selling in two years unless the break even time was a year or less.

Paying off the loan instead is really up to you. If you don't need the cash until you sell then you'll come out ahead by over $10k by paying it off. But having cash on hand can make buying a new place easier if it will avoid a contingency to sell your current place. When my wife and I upgraded to our current house, I was very glad to have a 20% down payment in cash because it allowed for favorable financing that didn't entangle my old house. I just had a second mortgage for two months while I waited for the old house to sell.

John Doe 123
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Re: Refinance or pay off mortgage?

Post by John Doe 123 » Mon Sep 09, 2019 1:34 pm

I would look into no cost refinance options. You should be able to refinance to a rate that is higher than the prevailing market rates, but lower than 4.25% without paying anything into closing costs.

rage_phish
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Re: Refinance or pay off mortgage?

Post by rage_phish » Mon Sep 09, 2019 1:43 pm

We plan on selling in two years and easily found a refi option with a break even of much less than two years

Absolutely worth shopping around. Worst case you waste a little time

cherijoh
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Location: Charlotte NC

Re: Refinance or pay off mortgage?

Post by cherijoh » Mon Sep 09, 2019 3:39 pm

chevca wrote:
Mon Sep 09, 2019 12:15 pm
I probably wouldn't refinance in your situation. If moving that soon, you would want the lowest closing costs possible, or lender credits that way, and that may not lower your rate enough to make it worthwhile. But, looking around can't hurt any. There may be good deals out there.

I would hang onto your cash for the next house. That will give you a lot more flexibility and options when looking for and buying the next one rather than having it all in the current house and everything depending on the sale of that one. Having the cash on hand will make that less stressful, IMO.
:thumbsup :thumbsup

Topic Author
BeanCity
Posts: 58
Joined: Thu Oct 25, 2018 1:13 pm

Re: Refinance or pay off mortgage?

Post by BeanCity » Tue Sep 10, 2019 10:02 am

cherijoh wrote:
Mon Sep 09, 2019 3:39 pm
chevca wrote:
Mon Sep 09, 2019 12:15 pm
I probably wouldn't refinance in your situation. If moving that soon, you would want the lowest closing costs possible, or lender credits that way, and that may not lower your rate enough to make it worthwhile. But, looking around can't hurt any. There may be good deals out there.

I would hang onto your cash for the next house. That will give you a lot more flexibility and options when looking for and buying the next one rather than having it all in the current house and everything depending on the sale of that one. Having the cash on hand will make that less stressful, IMO.
:thumbsup :thumbsup
Why does lowering my interest rate increase my closing cost when selling my house?

Any suggestions on where to start when shopping around? I find it very hard to decipher between adds that try and suck you in, and an actual deal.

After more consideration, I think I am going to not pay off my mortgage. This will give me a larger down payment, and flexibility if there is a downturn.

Thank you to the posts thus far.

knowledge
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Joined: Wed Mar 02, 2011 5:44 pm

Re: Refinance or pay off mortgage?

Post by knowledge » Tue Sep 10, 2019 10:18 am

John Doe 123 wrote:
Mon Sep 09, 2019 1:34 pm
I would look into no cost refinance options. You should be able to refinance to a rate that is higher than the prevailing market rates, but lower than 4.25% without paying anything into closing costs.
++ If you're absolutely certain that you're out in 2 years, you may want to consider a 5/1 ARM - though the rate difference isn't that much. Either way, do it with no cost.

daheld
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Location: STL

Re: Refinance or pay off mortgage?

Post by daheld » Tue Sep 10, 2019 10:23 am

If you're definitely moving in the next couple years, I'd do neither and make the minimum payment until selling.

Mako
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Re: Refinance or pay off mortgage?

Post by Mako » Tue Sep 10, 2019 3:53 pm

You might as well try to do a no cost refi. If you can shave even half a percent off your rate that should save you over $2000 over two years.

Go to aimloan.com or lenderfi.com and look at what rates give you enough lender credits to pay all your costs. You can also go for short ARMs since you plan to move, if those are lower.

Best I saw at the moment on aimloan was a 10 year fixed for 3.25 that appears to be just about no cost (you have to pay prepaids/escrow but those aren't really costs IMO). That's a full 1% off your rate, should save a few thousand in interest over the 2 years.

cherijoh
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Location: Charlotte NC

Re: Refinance or pay off mortgage?

Post by cherijoh » Tue Sep 10, 2019 4:27 pm

BeanCity wrote:
Tue Sep 10, 2019 10:02 am
cherijoh wrote:
Mon Sep 09, 2019 3:39 pm
chevca wrote:
Mon Sep 09, 2019 12:15 pm
I probably wouldn't refinance in your situation. If moving that soon, you would want the lowest closing costs possible, or lender credits that way, and that may not lower your rate enough to make it worthwhile. But, looking around can't hurt any. There may be good deals out there.

I would hang onto your cash for the next house. That will give you a lot more flexibility and options when looking for and buying the next one rather than having it all in the current house and everything depending on the sale of that one. Having the cash on hand will make that less stressful, IMO.
:thumbsup :thumbsup
Why does lowering my interest rate increase my closing cost when selling my house? <-- There are closing costs associated with the refi; I assumed that's what Chevca meant. Higher closing costs to refinance means your break even point may be longer than you plan to hold the new mortgage.

Any suggestions on where to start when shopping around? I find it very hard to decipher between adds that try and suck you in, and an actual deal.

After more consideration, I think I am going to not pay off my mortgage. This will give me a larger down payment, and flexibility if there is a downturn.

Thank you to the posts thus far.

JoeRetire
Posts: 2992
Joined: Tue Jan 16, 2018 2:44 pm

Re: Refinance or pay off mortgage?

Post by JoeRetire » Tue Sep 10, 2019 4:58 pm

BeanCity wrote:
Mon Sep 09, 2019 12:03 pm
I plan on moving out of my house in the next two years, and will probably buy a slightly more expensive house (lets say $100k more expensive).

Is it worth it to refinance to a lower mortgage rate, knowing that I will be leaving in two years?
No.
I could also potentially pay off the mortgage in its entirety immediately using money sitting in a money market making 2%. Would it be worth it to pay off the mortgage early on this one to capture the 4.25%, or wait until the next house and just pay that off completely?
Pay cash for your next house if you are significantly debt-averse. Otherwise decide if your money would be better off tied up in the walls of the house or invested, then act accordingly.

Topic Author
BeanCity
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Joined: Thu Oct 25, 2018 1:13 pm

Re: Refinance or pay off mortgage?

Post by BeanCity » Wed Sep 11, 2019 9:21 am

daheld wrote:
Tue Sep 10, 2019 10:23 am
If you're definitely moving in the next couple years, I'd do neither and make the minimum payment until selling.
I am currently paying an extra $1200 in principal/month. I do feel I could stop doing this and pay the minimum, and put the difference into the stock market.

Admiral
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Re: Refinance or pay off mortgage?

Post by Admiral » Wed Sep 11, 2019 11:05 am

BeanCity wrote:
Wed Sep 11, 2019 9:21 am
daheld wrote:
Tue Sep 10, 2019 10:23 am
If you're definitely moving in the next couple years, I'd do neither and make the minimum payment until selling.
I am currently paying an extra $1200 in principal/month. I do feel I could stop doing this and pay the minimum, and put the difference into the stock market.
Why in the world are you pre-paying on a mortgage you plan to get rid of in two years? This does almost nothing for you.

megabad
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Re: Refinance or pay off mortgage?

Post by megabad » Wed Sep 11, 2019 11:25 am

BeanCity wrote:
Mon Sep 09, 2019 12:03 pm
Is it worth it to refinance to a lower mortgage rate, knowing that I will be leaving in two years?
Based on my quick rough math, if you refinance to a low cost mortgage, you would net less than 1k in 2 years. Not sure if that is worth it to you. For me, it wouldn't be.

If you don't need the money, paying off the mortgage would net you maybe $14k in comparison. Of course, then your downpayment for the next house is at risk.

CurlyDave
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Re: Refinance or pay off mortgage?

Post by CurlyDave » Wed Sep 11, 2019 11:32 am

Think outside the box.

Upgrade your house now. This gives you a new loan at today's interest rates and the upgraded house.

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willthrill81
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Re: Refinance or pay off mortgage?

Post by willthrill81 » Wed Sep 11, 2019 8:44 pm

If you'll have enough liquidity after paying off the mortgage, I'd pay it off. A guaranteed 4.25% return (assuming you aren't deducting your mortgage interest) is unbeatable these days.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
BeanCity
Posts: 58
Joined: Thu Oct 25, 2018 1:13 pm

Re: Refinance or pay off mortgage?

Post by BeanCity » Fri Sep 13, 2019 8:33 am

Admiral wrote:
Wed Sep 11, 2019 11:05 am
BeanCity wrote:
Wed Sep 11, 2019 9:21 am
daheld wrote:
Tue Sep 10, 2019 10:23 am
If you're definitely moving in the next couple years, I'd do neither and make the minimum payment until selling.
I am currently paying an extra $1200 in principal/month. I do feel I could stop doing this and pay the minimum, and put the difference into the stock market.
Why in the world are you pre-paying on a mortgage you plan to get rid of in two years? This does almost nothing for you.
simply as a behavioral move to increase the amount of money I am putting away

Topic Author
BeanCity
Posts: 58
Joined: Thu Oct 25, 2018 1:13 pm

Re: Refinance or pay off mortgage?

Post by BeanCity » Fri Sep 13, 2019 8:36 am

willthrill81 wrote:
Wed Sep 11, 2019 8:44 pm
If you'll have enough liquidity after paying off the mortgage, I'd pay it off. A guaranteed 4.25% return (assuming you aren't deducting your mortgage interest) is unbeatable these days.
Yes I have actually taken into some other considerations, and paying off the full mortgage right now would not be my best bet. The oil and gas industry is in a downturn currently, and I sleep better at night knowing I have more cash. That being said, the amount I have is too much, and I need to just go ahead and move a lot of it into the Total Stock Market index fund.

NextMil
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Re: Refinance or pay off mortgage?

Post by NextMil » Fri Sep 13, 2019 9:43 am

BeanCity wrote:
Mon Sep 09, 2019 12:03 pm
30 years old/married no kids/maxing out all IRA's, HSAs, contributing $4K/month to taxable index funds

I currently have a mortgage rate of 4.25% on $300,000 loan. I have been seeing lots of adds for lower mortgage rates recently. If I were to talk to my mortgage company (or another one) about refinancing to get a lower loan, are there costs associated?

I plan on moving out of my house in the next two years, and will probably buy a slightly more expensive house (lets say $100k more expensive).

Is it worth it to refinance to a lower mortgage rate, knowing that I will be leaving in two years?

I could also potentially pay off the mortgage in its entirety immediately using money sitting in a money market making 2%. Would it be worth it to pay off the mortgage early on this one to capture the 4.25%, or wait until the next house and just pay that off completely?
I wouldn't refinance if you are going to move that soon, unless you can recapture your refi costs in two years, which is probably very unlikely.

But this begs the question, why wouldn't you just move now? Rates are low, so if you can stomach it in two years, you could probably stomach it now. Because you would be in effective refinancing your debt load, on a new house at a lower rate than you are currently paying even with a $100k higher debt load.

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