Refinancing for 15 year?

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Ed_Sandwich
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Refinancing for 15 year?

Post by Ed_Sandwich » Tue Oct 08, 2019 11:47 am

We have owned our home in a HCOL area for 4 years, and have a 30-year mortgage @ 3.8%. We don't have PMI (put 20% down). Home prices have really gone up, and I am wondering if it would make sense to refinance for a 15 year, now that rates are about 3% for those. Our monthly payment may increase by a bit (~$600) but we could afford it at this point. I know this is a personal decision dependent on many factors, but I am curious if there are any factors I am not paying attention to.

What would you do if you were me?

daheld
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Re: Refinancing for 15 year?

Post by daheld » Tue Oct 08, 2019 11:49 am

You're going to need to provide more information for anyone to really assess this, but in general, you can just pay ahead and turn a 30 year loan into a 15 year loan. You can keep the flexibility in terms of required minimum payment in case you lose a job or some other issues arises but still pay off early.

KlangFool
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Re: Refinancing for 15 year?

Post by KlangFool » Tue Oct 08, 2019 11:52 am

OP,

Do you believe that the future average annual inflation rate over the next 30 years would be more or less than 3.8%? If you believe that the inflation rate would be higher, why would you pay more now?

KlangFool

Olemiss540
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Re: Refinancing for 15 year?

Post by Olemiss540 » Tue Oct 08, 2019 12:14 pm

If you are saving/investing 2000 a month and sending 2000 per month to the mortgage, I would probably continue investing the extra 600. If you are investing 10000 per month and sending 2000 per month to the mortgage, I would probably spend the extra 600 on a 15 year note to increase debt payoff. Somewhere in between will depend on your overall financial picture and current/projected nest egg as well as planned retirement timeline.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

lazydavid
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Re: Refinancing for 15 year?

Post by lazydavid » Tue Oct 08, 2019 12:31 pm

Except for the HCOL bit, we were you a couple of years ago. We chose to refinance down from a 30 year at 3.875% to a 15 year at 2.5%, reducing our total term by 12 years and increasing our payment slightly. This became even more advantageous once we effectively lost the ability to deduct our mortgage interest.

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Watty
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Re: Refinancing for 15 year?

Post by Watty » Tue Oct 08, 2019 3:24 pm

Ed_Sandwich wrote:
Tue Oct 08, 2019 11:47 am
....but I am curious if there are any factors I am not paying attention to.
It is just a technicality but since you have had the loan for four years you would be going from a 26 year loan to a 15 year loan.

It is another "it depends" factor but many people find that having a paid off house when they retire works well for them so if you are less than 26 years from retiring going with a 15 year loan could help you get it paid off by the when you retire.

Another age related factor is that if you have young kids getting the house paid off by the time they start college might allow you to use your cash flow to pay some of their college costs.

fittan
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Re: Refinancing for 15 year?

Post by fittan » Tue Oct 08, 2019 4:27 pm

If you can swing it going to a 15 year is a good option. I did it and it allow me to pay off my mortgage (faster) eventually. There is also the mental aspect...26 years left feels like eternity whereas 15 years is more "manageable". Stay in your house for another 6 years and you're down to 9 years left (single digit). It then feels more attainable to be mortgage free. Throw in some bonus, reduce more expenses and soon you'll realize being debt free is possible.

Sandi_k
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Re: Refinancing for 15 year?

Post by Sandi_k » Tue Oct 08, 2019 4:58 pm

Most mortgagers will also do a 20 year term. Payments are not as high as for a 15 year term, but an enormous amount is going to principal, rather than interest, when you shorten the mortgage that drastically.

basspond
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Re: Refinancing for 15 year?

Post by basspond » Tue Oct 08, 2019 5:48 pm

We looked at the total interest payments when we went from 30 to 15. The interest on a 15 year for us was only 1/3, was guaranteed, and was automatic.

Broken Man 1999
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Re: Refinancing for 15 year?

Post by Broken Man 1999 » Tue Oct 08, 2019 6:02 pm

We only had two mortgages, and we took 30 year ones, and paid extra. It saved a bit, but also gave us flexibility so far as weathering job problems, etc.

As it turned out, we never had any real issues, so that was good.

The new tax law does play a not small part today, makes comparisons trickier than in the past.

The savings are real, but with just a one percent difference, you are loading up an additional $600/month on your budget.

I liked the ability to throw more $$$ at our mortgage, if I wanted to do so. If we had a large expenses over a few months, we just redirected the extra $$ to it rather than paying additional $$ to the mortgage.

Flexibility was nice to have.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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willthrill81
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Re: Refinancing for 15 year?

Post by willthrill81 » Tue Oct 08, 2019 7:13 pm

OP, there are many online calculators that will show you the money saved from refinancing to a lower rate. If the 15 year payment will not stretch your budget too much, it may be a better choice for you.
“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

chevca
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Re: Refinancing for 15 year?

Post by chevca » Tue Oct 08, 2019 7:36 pm

I like to keep things simple. If the new payment on a 15 year mortgage is easily manageable and you lower your mortgage rate by a good bit, go for it.

bltn
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Re: Refinancing for 15 year?

Post by bltn » Tue Oct 08, 2019 7:52 pm

If you can afford the extra 600 dollars a month, refinance for 15 years. You lose a bit a flexibility you might have prepaying the 30 year mortgage, but you pay less interest with the 15 year note and may be able to prepay the 15 year mortgage down the road. Build a 6 -12 month contingency fund to take care of flexibility needs.

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willthrill81
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Re: Refinancing for 15 year?

Post by willthrill81 » Tue Oct 08, 2019 7:59 pm

bltn wrote:
Tue Oct 08, 2019 7:52 pm
If you can afford the extra 600 dollars a month, refinance for 15 years. You lose a bit a flexibility you might have prepaying the 30 year mortgage, but you pay less interest with the 15 year note and may be able to prepay the 15 year mortgage down the road. Build a 6 -12 month contingency fund to take care of flexibility needs.
If a more sizable EF enables the OP to have enough flexibility to comfortably take on the 15 year mortgage, the implied 'return' on the additional funds in the EF can be very significant, well into the double-digits.
“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

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