The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Gone Fishing on August 27, 2014, 03:18:01 PM
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Home Value
Current Mortgage(s) balance(s)
Current Rate
Current Payment
Original Term
Years Remaining
How long you plan on staying
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Please keep in mind the world is made up of more countries than the US.
Regards
Mr >5% Land
(in jest of course :) no malice intended)
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Please keep in mind the world is made up of more countries than the US.
Regards
Mr >5% Land
(in jest of course :) no malice intended)
+1.
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Please keep in mind the world is made up of more countries than the US.
Regards
Mr >5% Land
(in jest of course :) no malice intended)
At least you get that nifty offset account...
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I thank my lucky stars every month that I refi-ed when I did and got a juicy 3.875 rate for 20 yrs.
I got those exact terms late in 2011. Then I switched to 2.875% 15yr in 2013.
Sorry aussie's and canucks and whoever else has higher rates. Unfortunately many here argue it does more harm than good so we will see higher rates soon. Hopefully just in time for me to FIRE and put 20% of our portfolio in high interest muni bonds.
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I'm at 5%. Refinanced four years ago from 6.5%. Still one more year to go to remove the FHA PMI payments... I'm not sure we're going to still be in this house for much more than one more year.
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Okay, I'll play, but there's a catch coming:
Home Value $401k
Current Mortgage(s) balance(s) $227k
Current Rate 4.875%
Current Payment $1680 (includes taxes and insurance)
Original Term 30 years
Years Remaining ~24-ish
How long you plan on staying No plans to sell
Here's the catch: This is non-owner occupied. It's in a very nice retirement community and is going to be our second home/retirement home in about seven years or so. It's currently rented and reported accordingly. I know I'm on the edge of re-fi viability and happen to be thinking about this at present. Since I'm seriously interested, I thought I'd throw my monkey[wrench] into the ring.
I'm not all that keen on shortening the term of the loan and wouldn't hate recasting the whole thing, as I'm in the mortgage-can-be-a-tool-for-creating-wealth camp, but a fifteen or twenty year term is not out of the question. What else? I'm FIRE, but DH still works. No other mortgages or debt. Good credit scores. Don't know if this matters, but house was purchased prior to DH and is still in my name only. I live in CA, which is a community property state.
Thanks for looking!
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I refinanced into a variable rate mortgage in early 2011, which as it turns out was the best possible time. I've been sitting at Prime - 0.8% for the last 3 years, or 2.2%. I just wish my mortgage was bigger!
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I'm at 2.99%
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I'm in the middle of the refinance process right now. I'm at 5.5% on a 30 year fixed with 66k owed of a 78k loan. The refinance terms I just got approved for are 3.55% on a 15 year fixed with 68k owed after closing costs. According to the loan officer my payment will only go up $33 a month to knock 13 years off the mortgage.
I'd say it's a win in on my way to FIRE.
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I am at 4.25% 30 year mortgage. I bought my house in 2010. I plan to have my home paid off in 4 more years so while I probably could refinance to a lower rate with a lower term I don't think the costs associated with it now would provide me savings given the pace I am on.
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I'm at 5%. Refinanced four years ago from 6.5%. Still one more year to go to remove the FHA PMI payments... I'm not sure we're going to still be in this house for much more than one more year.
If your home has increase in value, you can request a home assessment ( you can pay out of pocket for it or in some cases they'll add it to your loan balance), or if you've reduced your principle enough that you LTV is under 80% you can get rid of PMI. I did this and it only cost me $450 vs. the $200 I was paying in PMI monthly, I only wish I had done it so much sooner. Check you mortgage holders website or contact them directly. It can't hurt and may save you some money.
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I'm at 5%. Refinanced four years ago from 6.5%. Still one more year to go to remove the FHA PMI payments... I'm not sure we're going to still be in this house for much more than one more year.
If your home has increase in value, you can request a home assessment ( you can pay out of pocket for it or in some cases they'll add it to your loan balance), or if you've reduced your principle enough that you LTV is under 80% you can get rid of PMI. I did this and it only cost me $450 vs. the $200 I was paying in PMI monthly, I only wish I had done it so much sooner. Check you mortgage holders website or contact them directly. It can't hurt and may save you some money.
We're at about ~74% loan to original value. However, Zillow estimates the value of my house at less than what we owe, which means a home assessment will not help. I'd need to put down a significant amount of cash if I wanted a conventional refinance.
I did call my bank asking if they could remove PMI since I got under 78% LTV. However for a FHA loan made in 2008 you have to have had the mortgage for at least five years first. This clock reset when we refinanced in 2010, hence one more year before PMI goes away.
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I thank my lucky stars every month that I refi-ed when I did and got a juicy 3.875 rate for 20 yrs.
I got those exact terms late in 2011. Then I switched to 2.875% 15yr in 2013.
Sorry aussie's and canucks and whoever else has higher rates. Unfortunately many here argue it does more harm than good so we will see higher rates soon. Hopefully just in time for me to FIRE and put 20% of our portfolio in high interest muni bonds.
We could laugh, yet probably both have better health insurance. =-)
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Home Value ~$240K according to Zillow
Current Mortgage(s) balance(s) ~160ish
Current Rate 3.5%
Current Payment ~1,000 (PITI)
Original Term 30 years
Years Remaining 28 years
How long you plan on staying: indefinitely - might downsize at some point, though I'd hate to leave the garden I've built here
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I thank my lucky stars every month that I refi-ed when I did and got a juicy 3.875 rate for 20 yrs.
I got those exact terms late in 2011. Then I switched to 2.875% 15yr in 2013.
Sorry aussie's and canucks and whoever else has higher rates. Unfortunately many here argue it does more harm than good so we will see higher rates soon. Hopefully just in time for me to FIRE and put 20% of our portfolio in high interest muni bonds.
We could laugh, yet probably both have better health insurance. =-)
Better health insurance and a 2.99% mortgage. :D
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Got 2.625% for a 15 year re-fi in early 2013. One of my best moves ever!
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Please keep in mind the world is made up of more countries than the US.
Regards
Mr >5% Land
(in jest of course :) no malice intended)
Are you sure? I remember clearly the maps we studied in school: the US front and center and the rest of the globe? Well, there be dragons...
(Also in jest!)
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LOL, well then Ms butterfly.
Seeing as the Simpsons have visited Orr-Stray-Ya you know we must exist!
We have the most deadliest snakes and spiders in the world, and our Koala's will kill you with their cuteness!
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Value 250k
Owe 170k
13 years left
3% flat
1711 payment ( high taxes 4k)
Refi'd 3 times from a 5% with pmi on a 30 to a 4.5% no PMI 20 then a 3.75% 20 then current loan. All no cost refi's
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Home Value ~$180k
Current Mortgage(s) balance(s)~$70k
Current Rate2.50%
Current Payment~$900
Original Term11 year refi
Years Remaining~7
How long you plan on staying~13+ - pension is available @ a reduced rate in ~13 years at the earliest.
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Home Value: Bought for $107k; worth at least $150k now (Zillow thinks it's more like $230k)
Current Mortgage(s) balance(s): $87K
Current Rate: 5.25% + PMI
Current Payment: $800
Original Term: 30 years
Years Remaining: 25.5
How long you plan on staying: If we move, this will become a rental property.
I would love to refinance, but I have some unusual circumstances that make it difficult:
- The house (and mortgage) are in my wife's name only, and she hasn't had a stable employment history lately. I assume this would make it hard to refinance in her name. I'm waffling on whether it's better to go ahead and get a mortgage in both our names, or if I should "save" my credit for separate real-estate investment
- We got down-payment assistance from the city in the form of a second mortgage with no payment that gets forgiven in another 5.5 years. We'd have to find a lender willing to subordinate that second mortgage.
- If we refinance, we'd like to do a cash-out refinance in order to fund improvements to the property.
- I'm not sure how appraisers would react to the fact that we're in the midst of some (minor) renovations. Would we still get credit for our 3rd bedroom if the closet is currently demolished, for example?
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Home Value ~55k according to zillow
Current Mortgage(s) balance(s) 33k
Current Rate 6.875%
Current Payment $370 T&I included
Original Term 30
Years Remaining ~23 years
How long you plan on staying Will likely become rental when we move up in house
Thoughts?
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We're at 6% and I thought about refiing a couple of years ago, but then I realized I was within a couple of years of being able to pay it off in full (we have 18 years left on a 30 yr.), so I did the math and all the costs, etc. weren't worth it. Now, we're within about 3 months of being able to pay it off, so definitely no point in bothering.
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We are at 2.65% on a 15yr mortgage, roughly 350k over 11 12 years left. We originally had a 4 7/8% mortgage, but refinanced down twice. I keep telling the wife to STOP throwing extra money at the mortgage.
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Okay, I'll play, but there's a catch coming:
Home Value $401k
Current Mortgage(s) balance(s) $227k
Current Rate 4.875%
Current Payment $1680 (includes taxes and insurance)
Original Term 30 years
Years Remaining ~24-ish
How long you plan on staying No plans to sell
Here's the catch: This is non-owner occupied. It's in a very nice retirement community and is going to be our second home/retirement home in about seven years or so. It's currently rented and reported accordingly. I know I'm on the edge of re-fi viability and happen to be thinking about this at present. Since I'm seriously interested, I thought I'd throw my monkey[wrench] into the ring.
I'm not all that keen on shortening the term of the loan and wouldn't hate recasting the whole thing, as I'm in the mortgage-can-be-a-tool-for-creating-wealth camp, but a fifteen or twenty year term is not out of the question. What else? I'm FIRE, but DH still works. No other mortgages or debt. Good credit scores. Don't know if this matters, but house was purchased prior to DH and is still in my name only. I live in CA, which is a community property state.
Thanks for looking!
Not sure where rental property rates are at the moment, but every .1% drop in rate will save you approx $227 over the next twelve months. Get a couple quotes to see how much you can drop the rate and how much it will cost to refi. If you plan on holding the property a long time, it doesn't take much to justify a refi.
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Home Value ~55k according to zillow
Current Mortgage(s) balance(s) 33k
Current Rate 6.875%
Current Payment $370 T&I included
Original Term 30
Years Remaining ~23 years
How long you plan on staying Will likely become rental when we move up in house
Thoughts?
Hi Timmmy. I'm not the OP, but your situation is intriguing. Without knowing any of your particulars, I'm wondering if something unconventional could be in order here. Assuming all other aspects of your financial life are in good order and your credit it excellent, what about scouting out 0% + no fee on balance transfers credit card offers? Bonus points if it's an affinity card that gives you mileage/hotel/cash back. You're probably taking the standard deduction on your taxes, so there's no loss there. Working the bonus angles is worth considering. Risky for a noob, but not for a smart mustachian with plenty o' cash 'stached.
On the flip side, your rate is a facepuncher. Since you want to keep the house and owner occupied rates are virtually always better, I'd consider recasting the entire loan. Yup, do the whole thing over. Borrow up to 80% of LTV and use the proceeds get into the next house/invest/payoffdebt. Get the lowest rate possible. Use your current situation to help yourself build wealth. Since rates have been historically low for an unprecedented length of time, some of y'all are starting to think they're normal. They are not and this chance to lock in such cheap money should not be overlooked. One of these days, these threads could be full of folks calling themselves idiots for paying off their shockingly cheap loans, when they could have done smarter things with the money.
So the real question to ask is: Do I want to kill all debt or do I want to create personal wealth? Consider that killing consumer debt stops the waste but doesn't create anything. Judicious use of secured debt is a time-honored and tax-efficient (in the U.S.) way to create wealth. It is wealth that gives one true freedom and a broader range of opportunity in life.
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Home Value: Bought for $107k; worth at least $150k now (Zillow thinks it's more like $230k)
Current Mortgage(s) balance(s): $87K
Current Rate: 5.25% + PMI
Current Payment: $800
Original Term: 30 years
Years Remaining: 25.5
How long you plan on staying: If we move, this will become a rental property.
I would love to refinance, but I have some unusual circumstances that make it difficult:
- The house (and mortgage) are in my wife's name only, and she hasn't had a stable employment history lately. I assume this would make it hard to refinance in her name. I'm waffling on whether it's better to go ahead and get a mortgage in both our names, or if I should "save" my credit for separate real-estate investment
- We got down-payment assistance from the city in the form of a second mortgage with no payment that gets forgiven in another 5.5 years. We'd have to find a lender willing to subordinate that second mortgage.
- If we refinance, we'd like to do a cash-out refinance in order to fund improvements to the property.
- I'm not sure how appraisers would react to the fact that we're in the midst of some (minor) renovations. Would we still get credit for our 3rd bedroom if the closet is currently demolished, for example?
As far as putting the loan in both of your names, I always figure a bird in the hand is worth two in the bush, if you can save now, might as well do it. Especially if you can get rid of PMI in the process.
If anything it is the city that should subordinate to the new mortgage, they had a second to begin with, they should be okay to stay second. Not to say governements are smart but any program that prevents people from being able to refi is pretty sorry.
Cash outs are getting a little more scrutiny and may carry a higher rate. You'll have to check and see what the lenders say to judge if it is worth it.
Partial renovations can certainly be a problem for appraisers. Maybe try timing your mortgage shopping with the completion of your renovations.
I think it is certainly worth a shop, you could probably save $870 a year or so in interest plus whatever you are paying in PMI.
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Home Value ~55k according to zillow
Current Mortgage(s) balance(s) 33k
Current Rate 6.875%
Current Payment $370 T&I included
Original Term 30
Years Remaining ~23 years
How long you plan on staying Will likely become rental when we move up in house
Thoughts?
You should certainly shop your rate. Your balance is so low lenders might want a little higher rate than average, but you could still save quite a bit, perhaps $700 or so a year. Given how high your rate is, your exisiting lender may have a program to reduce it without going through a full refi. Have you contacted them and asked for a reduction?
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I see everyone is enjoying bragging about the great rates they locked in at the bottom of the market!
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So I've attached a spreadsheet I use when analyzing mortgage rates and comparing a 30 yr vs. a 15 yr or whatever else you want to look at. It's not perfect and please facepunch me if there are any errors, I just thought it could be a good resource for anyone interested.
A few notes:
1) Put your numbers in the gray areas, the rest will calculate itself.
2) Columns A-E encompasses one mortgage (30 yr, or your current one) and columns G-K encompasses a different mortgage (15 yr, or a new mortgage).
3) Columns M-O calculate the difference in total payment, interest, and principal. P is cumulative principal savings.
4) Columns Q-S calculate your investment return on the cash savings from a refi, or from going 30 yr to 15 yr.
5) This assumes an 8% ROR on any invested cash, but you can change that assumption in the gray cell in that area of the calculation.
6) Column T is your cumulative Savings (Loss) by choosing the second mortgage.
7) In this scenario I used Diane C's mortgage balance and the rates I know I could attain in my current market.
If your still with me here, you should note that in row 80, column T, the momentum shifts. For the first 5 years the 15 yr mortgage is winning. Then the 30 yr starts to slowly pull back. In row 135 (10 years from now) the 30 yr mortgage starts to pull ahead into positive territory, and at the end of 15 years the 30 yr wins by $25K in net worth. Beyond that I'm not sure the formulas and math are correct, but here's the point of this exercise:
If you run the numbers and you plan to stay in your home for only 5-10 years, get a 15 year mortgage. If you plan to stay there longer, and you don't mind carrying debt like Diane and I (and ~25% of the forum members), then you likely should get a 30 year mortgage and invest the cash flow difference.
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Home Value ~55k according to zillow
Current Mortgage(s) balance(s) 33k
Current Rate 6.875%
Current Payment $370 T&I included
Original Term 30
Years Remaining ~23 years
How long you plan on staying Will likely become rental when we move up in house
Thoughts?
You should certainly shop your rate. Your balance is so low lenders might want a little higher rate than average, but you could still save quite a bit, perhaps $700 or so a year. Given how high your rate is, your exisiting lender may have a program to reduce it without going through a full refi. Have you contacted them and asked for a reduction?
+1. Or maybe get a HELOC. OR like Diane said, get a new mortgage for 80% of the value of your home and invest the cash.
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Home Value ~55k according to zillow
Current Mortgage(s) balance(s) 33k
Current Rate 6.875%
Current Payment $370 T&I included
Original Term 30
Years Remaining ~23 years
How long you plan on staying Will likely become rental when we move up in house
Thoughts?
Hi Timmmy. I'm not the OP, but your situation is intriguing. Without knowing any of your particulars, I'm wondering if something unconventional could be in order here. Assuming all other aspects of your financial life are in good order and your credit it excellent, what about scouting out 0% + no fee on balance transfers credit card offers? Bonus points if it's an affinity card that gives you mileage/hotel/cash back. You're probably taking the standard deduction on your taxes, so there's no loss there. Working the bonus angles is worth considering. Risky for a noob, but not for a smart mustachian with plenty o' cash 'stached.
On the flip side, your rate is a facepuncher. Since you want to keep the house and owner occupied rates are virtually always better, I'd consider recasting the entire loan. Yup, do the whole thing over. Borrow up to 80% of LTV and use the proceeds get into the next house/invest/payoffdebt. Get the lowest rate possible. Use your current situation to help yourself build wealth. Since rates have been historically low for an unprecedented length of time, some of y'all are starting to think they're normal. They are not and this chance to lock in such cheap money should not be overlooked. One of these days, these threads could be full of folks calling themselves idiots for paying off their shockingly cheap loans, when they could have done smarter things with the money.
So the real question to ask is: Do I want to kill all debt or do I want to create personal wealth? Consider that killing consumer debt stops the waste but doesn't create anything. Judicious use of secured debt is a time-honored and tax-efficient (in the U.S.) way to create wealth. It is wealth that gives one true freedom and a broader range of opportunity in life.
Some more things to clarify. DW and I combined income is just over 100k. No debt and credit scores should be in the 800 range. I also forgot to mention that we are currently paying PMI. It's a rather small $15 per month but still it's more savings to be had.
I try to keep my financial life simple so I'd rather not play with the balance transfers at 0%.
We are usually just over the standard deduction but close enough that it doesn't really come in to play.
I'd consider recasting the entire loan for the right rate. Seems to me that the rates on the small loans are not good enough to keep around for the full term.
I'm feeling intrigued enough to go talk to some people.
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So I've attached a spreadsheet I use when analyzing mortgage rates and comparing a 30 yr vs. a 15 yr or whatever else you want to look at. It's not perfect and please facepunch me if there are any errors, I just thought it could be a good resource for anyone interested.
A few notes:
1) Put your numbers in the gray areas, the rest will calculate itself.
2) Columns A-E encompasses one mortgage (30 yr, or your current one) and columns G-K encompasses a different mortgage (15 yr, or a new mortgage).
3) Columns M-O calculate the difference in total payment, interest, and principal. P is cumulative principal savings.
4) Columns Q-S calculate your investment return on the cash savings from a refi, or from going 30 yr to 15 yr.
5) This assumes an 8% ROR on any invested cash, but you can change that assumption in the gray cell in that area of the calculation.
6) Column T is your cumulative Savings (Loss) by choosing the second mortgage.
7) In this scenario I used Diane C's mortgage balance and the rates I know I could attain in my current market.
If your still with me here, you should note that in row 80, column T, the momentum shifts. For the first 5 years the 15 yr mortgage is winning. Then the 30 yr starts to slowly pull back. In row 135 (10 years from now) the 30 yr mortgage starts to pull ahead into positive territory, and at the end of 15 years the 30 yr wins by $25K in net worth. Beyond that I'm not sure the formulas and math are correct, but here's the point of this exercise:
If you run the numbers and you plan to stay in your home for only 5-10 years, get a 15 year mortgage. If you plan to stay there longer, and you don't mind carrying debt like Diane and I (and ~25% of the forum members), then you likely should get a 30 year mortgage and invest the cash flow difference.
Does your spreadsheet assume that once the 15yr is payed off the monthly payments would be saved/invested?
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Yes, sort of.
When I got to the bottom of the 15 year I stopped. It didn't matter to me. It was clear after 15 years, that the 30 year mortgage won. I believe it continues to win because you've built an enormous investment balance at that point which will continue to return 8% or whatever. With the 15 year you could then invest the full payment, but your theoretical investment account would be starting at $0 and would need a lot of time to catch up with the theoretical investment account under the 30 year plan. It's possible it would catch up, but it's not likely.
The numbers continued to calculate, but I didn't check into their accuracy. Feel free to vet the calculation beyond the 15 year mark. Let me know if you find any errors so I can update the spreadsheet on my end.
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Yes, sort of.
When I got to the bottom of the 15 year I stopped. It didn't matter to me. It was clear after 15 years, that the 30 year mortgage won. I believe it continues to win because you've built an enormous investment balance at that point which will continue to return 8% or whatever. With the 15 year you could then invest the full payment, but your theoretical investment account would be starting at $0 and would need a lot of time to catch up with the theoretical investment account under the 30 year plan. It's possible it would catch up, but it's not likely.
The numbers continued to calculate, but I didn't check into their accuracy. Feel free to vet the calculation beyond the 15 year mark. Let me know if you find any errors so I can update the spreadsheet on my end.
That makes no sense to me. If I have a 15yr mortgage, it ends, and then I start investing the entire amount I would have been paying into the mortgage, it seems impossible not to be ahead. Or to slap numbers on it: imagine mortgage payments are 30k a year. You need to figure that 30k*15 = 450k INVESTED while the 30yr mortgage holder is still paying off their mortgage....Also need to consider the lower payment of the 30yr, but my intuition is telling me the 15yr mortgage wins easily.
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I just ran your numbers in that spreadsheet-to get a 15 yr payment at $30k/yr it would be a $356K mortgage at either 15 yr 4.125% or a 30 yr at 3.25%. According to the spreadsheet as it stands the 30 year comes out ahead by $293K (See below for other numbers I ran independent of this spreadsheet).
Don't forget, the 30 year has a big head start because it has 15 years of invested principal + return. Your $30k/yr (15 yr loan) mortgage payments are only $21k/year on a 30 year mortgage. So invest 9K/yr * 15 years = 150K principal, plus 15 years of earnings. That comes to an investment balance of $270,367.31 with an 8% return in 15 years. Now, for the next 15 years you still have that $9k principal/year to invest against your $30K principal/year with the 15 yr option.
Even if you put nothing into the investment pool after 15 years (which is unlikely since you could continue to put in $9k/year), the 30 year scenario ends up at $857,650 with a continued 8% return by the end of the 30 year period.
If you go the 15 year route, begin investing $30k/year at the end of the mortgage with an 8% return, you will have ~$626,814 at the end of the 30 years.
$857,650>$626,814
30 year > 15 year
8% > 4.125%
Math>Psychology
This all assumes a steady 8% return on investments. This all assumes a 4.125% 30 year rate and a 3.25% 15 year rate. There are variables, but if you are in your "Forever Home" and you have an opportunity to lock in a very low rate right now, pick the 30 year, invest the difference, you will come out ahead.
This is not the only way, but in my opinion it's the better/optimal way to come out ahead. YMMV.
EDIT - Just noticed this red part has the rates backwards - sorry for any confusion.
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Home Value
Current Mortgage(s) balance(s)
Current Rate
Current Payment
Original Term
Years Remaining
How long you plan on staying
Past primary residence with roommates, currently rented out, future primary residence (long story)
Value: ~$22-25k (guestimate)
Owe: ~$8k
Rate: 5%
Current payment: $390/month P/I + taxes
Original Term: 5 yr
Years Remaining: 2.5
We'll be moving in there in just under a year, and probably staying about two years before moving and renting it out again.
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We have a mortgage balance of $635K. House likely worth $1.3 or $1.4M. 3 years left on 5/1 ARM at 3.125%. Rates are still low but if they start to creep up we might look into refinancing. The cap on the floating rate is 8% so not too bad, and we'd be able to deduct it all on the taxes anyway.
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I just ran your numbers in that spreadsheet-to get a 15 yr payment at $30k/yr it would be a $356K mortgage at either 15 yr 4.125% or a 30 yr at 3.25%. According to the spreadsheet as it stands the 30 year comes out ahead by $293K (See below for other numbers I ran independent of this spreadsheet).
Don't forget, the 30 year has a big head start because it has 15 years of invested principal + return. Your $30k/yr (15 yr loan) mortgage payments are only $21k/year on a 30 year mortgage. So invest 9K/yr * 15 years = 150K principal, plus 15 years of earnings. That comes to an investment balance of $270,367.31 with an 8% return in 15 years. Now, for the next 15 years you still have that $9k principal/year to invest against your $30K principal/year with the 15 yr option.
Even if you put nothing into the investment pool after 15 years (which is unlikely since you could continue to put in $9k/year), the 30 year scenario ends up at $857,650 with a continued 8% return by the end of the 30 year period.
If you go the 15 year route, begin investing $30k/year at the end of the mortgage with an 8% return, you will have ~$626,814 at the end of the 30 years.
$857,650>$626,814
30 year > 15 year
8% > 4.125%
Math>Psychology
This all assumes a steady 8% return on investments. This all assumes a 4.125% 30 year rate and a 3.25% 15 year rate. There are variables, but if you are in your "Forever Home" and you have an opportunity to lock in a very low rate right now, pick the 30 year, invest the difference, you will come out ahead.
This is not the only way, but in my opinion it's the better/optimal way to come out ahead. YMMV.
I guess we got lucky, we went from a 4 7/8% 30 yr to a 2 5/8% 15yr (had to bring something like 20k to the table to get the mortgage principal down).
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I guess we got lucky, we went from a 4 7/8% 30 yr to a 2 5/8% 15yr (had to bring something like 20k to the table to get the mortgage principal down).
Yeah, that's likely a good move. I'm not saying don't get a low rate. You substantially helped your long-term net worth by reducing the rate that much.
I have a 15 yr 2.875% mortgage right now, but we only plan to be in this house for another 3-5 years. I plan to make our next move a 20+ year stay, so I will likely get a 30 year at that point. When I got this rate, we could have also done 3.25% 20 yr or 3.625% 30 yr.
However, if you'd priced a 30 yr at that time it was likely ~3.5% and that might have been a better long-term deal if you'd invested the difference in monthly payment into the market, and you planned to stay there > 10 years. Either way, you are better off than the 4.875% you had.
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I guess we got lucky, we went from a 4 7/8% 30 yr to a 2 5/8% 15yr (had to bring something like 20k to the table to get the mortgage principal down).
Yeah, that's likely a good move. I'm not saying don't get a low rate. You substantially helped your long-term net worth by reducing the rate that much.
I have a 15 yr 2.875% mortgage right now, but we only plan to be in this house for another 3-5 years. I plan to make our next move a 20+ year stay, so I will likely get a 30 year at that point. When I got this rate, we could have also done 3.25% 20 yr or 3.625% 30 yr.
However, if you'd priced a 30 yr at that time it was likely ~3.5% and that might have been a better long-term deal if you'd invested the difference in monthly payment into the market, and you planned to stay there > 10 years. Either way, you are better off than the 4.875% you had.
The 4 7/8 payment was 3300/mth. The 2 5/8 payment is 2700/mth. So by going to the lower rate I *freed* 600/mth to invest (at the cost of ~20k to bring the principle down). I think the bank stood to make something like 500k on a 480k mortgage at the higher rate; at the new rate the lender stands to make something 60k (IIRC). So the way I look at it we saved ~440k + all the money that capital can generate.
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What is a current good mortgage rate? I'm looking at buying a house right now and have been offered 4.25% from the first company I've approached to "pre qualify."
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What is a current good mortgage rate? I'm looking at buying a house right now and have been offered 4.25% from the first company I've approached to "pre qualify."
I suggest checking plugging your info into bankrate to get a sense of low-high end APRs
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I see everyone is enjoying bragging about the great rates they locked in at the bottom of the market!
2.85% 30 yr. booyah love you Navy Federal.
I can't top that, but we love our 3.25% 15 year note.
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I got those exact terms late in 2011. Then I switched to 2.875% 15yr in 2013.
Sorry aussie's and canucks and whoever else has higher rates. Unfortunately many here argue it does more harm than good so we will see higher rates soon. Hopefully just in time for me to FIRE and put 20% of our portfolio in high interest muni bonds.
Nah brah. In Alberta, Canada here. My rate is variable it's a 2.35% right now. Could potentially go up but I can push it into fixed later.
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I ask because, if it is, you should at least do the math and see if it is worth refinancing. Post the following infomation and we can help determine if it makes sense:
Home Value
Current Mortgage(s) balance(s)
Current Rate
Current Payment
Original Term
Years Remaining
How long you plan on staying
Home Value: About $250,000 according to Zillow (however purchased in 2006 for $320, 000)
Current Mortgage(s) balance(s) We have 2 because when we purchased we put 10% down , and then a a mortgage for the 80% and one for 10%. The balances are A: $230114.02 and B: $23240.55
Current Rate A:4.875% and B: 7.917%
Current Payment: A: 1847.77 (includes taxes and insurance) and B: $235
Original Term: 30 years for both
Years Remaining: A:25 years b: 22 years
How long you plan on staying: no intentions of moving
I have tried to refinance, but we are currently barely breaking even. our house lost a lot of value when the housing bubble crashed. If we refinance now, they would combine the two mortgages and then we would have to pay PMI. so far everyone I've spoken to have said it is best that we stay with what we have and work at paying off the smaller mortgage a bit quicker if we can.
Anyone have any ideas?
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If you run the numbers and you plan to stay in your home for only 5-10 years, get a 15 year mortgage. If you plan to stay there longer, and you don't mind carrying debt like Diane and I (and ~25% of the forum members), then you likely should get a 30 year mortgage and invest the cash flow difference.
I think an even better option is to get an ARM loan corresponding to how long you plan to stay if your intended timeline is only 5-10 years. You will get the lowest rate (lower than a 15 Yr fixed ) amortized over 30 years, which frees up the most capital for investing.
The average US homeowner sells every 7 years, but gets a 30 year fixed rate mortgage. This ends up costing them so much more because a 7 Yr ARM has a lower rate than a 30 Yr fixed. If you know that you will be moving in 10 years or less, you should never get a fixed rate mortgage. It's just paying the bank extra money for rate protection that you don't need.
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Good point poorman. I haven't done that option but I've read here about people using it. Worth consideration for sure.
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Bought my place 6 months ago for $325k, 20% down making a 260k loan. Financed as a 30yr fix @ 4.625%
Just completed a refi to a 10 yr ARM @ 3.375% with 2% rate adjustment every 2 years thereafter, max rate of 8.375%
Really hoping I didnt mess up but running the numbers it seems like given the worst case scenario on the ARM, the ARM would remain a better buy until year 24 and with the closing costs my break even point is month 14.
After living there six months (its my first home) I realized that theres a very low chance I will be here for more than 5-10 years. It is an excellent starter home in an up and coming area of Boston, but I know in the future I will want more land, less city.
Lifes a gamble.
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im at 4.96. I should of refinanced when rates were lower but didn't really know much about it back then.
I may or may not move, I have no idea, so I probably won't refinance. I almost moved just this year to dc. I like adventure so there is no telling what the near future ensues.
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
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Mortgage rates just plummeted today. Nows probably a really good time
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
loans.com - regular rate.
details here: https://www.loans.com.au/home
the comparison rate is 4.51 because of the $300 setup fee, and $220 house valuation cost.
The current available rate is 4.54 , but I got my loan when the advertised rate was 4.49, and my rate stayed at 4.49.
I'm pretty sure it is the cheapest in australia.
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Past primary residence with roommates, currently rented out, future primary residence (long story)
Value: ~$22-25k (guestimate)
Owe: ~$8k
Rate: 5%
Current payment: $390/month P/I + taxes
Original Term: 5 yr
Years Remaining: 2.5
We'll be moving in there in just under a year, and probably staying about two years before moving and renting it out again.
As recommended to the other person with a low balance, you would probably do well to refi into a HELOC or 0% credit card offer as long as you can pay it off within the terms, you'd have to watch out for balance transfer fees on the card though as they could eat all your interest rate savings.
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Home Value: About $250,000 according to Zillow (however purchased in 2006 for $320, 000)
Current Mortgage(s) balance(s) We have 2 because when we purchased we put 10% down , and then a a mortgage for the 80% and one for 10%. The balances are A: $230114.02 and B: $23240.55
Current Rate A:4.875% and B: 7.917%
Current Payment: A: 1847.77 (includes taxes and insurance) and B: $235
Original Term: 30 years for both
Years Remaining: A:25 years b: 22 years
How long you plan on staying: no intentions of moving
I have tried to refinance, but we are currently barely breaking even. our house lost a lot of value when the housing bubble crashed. If we refinance now, they would combine the two mortgages and then we would have to pay PMI. so far everyone I've spoken to have said it is best that we stay with what we have and work at paying off the smaller mortgage a bit quicker if we can.
Anyone have any ideas?
Sorry, but the best thing to do now is stay the course. You may be able to roll off a portion of the second with a 0% credit card balance transfer and reduce your rate a little. For example:
You are paying $500/mo extra on the second. You get an offer for $7500 card with 3% transfer fee and 0% for 12 months. You transfer $6000 to the card and pay it off in 12 months. Don't be fooled into thinking this reduces your rate to 3% though. The 3% is charged on the entire $6000 upfront, but your average balance over the course of 12 months is only about $3000, so the effective rate is closer to 6%. A little better than 7.9% though.
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Bought my place 6 months ago for $325k, 20% down making a 260k loan. Financed as a 30yr fix @ 4.625%
Just completed a refi to a 10 yr ARM @ 3.375% with 2% rate adjustment every 2 years thereafter, max rate of 8.375%
Really hoping I didnt mess up but running the numbers it seems like given the worst case scenario on the ARM, the ARM would remain a better buy until year 24 and with the closing costs my break even point is month 14.
After living there six months (its my first home) I realized that theres a very low chance I will be here for more than 5-10 years. It is an excellent starter home in an up and coming area of Boston, but I know in the future I will want more land, less city.
Lifes a gamble.
Given that your time frame is less than 10 years, I think you got into the optimal mortgage product.
FYI- Most 10 Yr ARM's have a break even with a 30 Yr Fixed in year 12 or 13, assuming maximum rate increases (and not factoring opportunity cost).
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Home Value: About $250,000 according to Zillow (however purchased in 2006 for $320, 000)
Current Mortgage(s) balance(s) We have 2 because when we purchased we put 10% down , and then a a mortgage for the 80% and one for 10%. The balances are A: $230114.02 and B: $23240.55
Current Rate A:4.875% and B: 7.917%
Current Payment: A: 1847.77 (includes taxes and insurance) and B: $235
Original Term: 30 years for both
Years Remaining: A:25 years b: 22 years
How long you plan on staying: no intentions of moving
I have tried to refinance, but we are currently barely breaking even. our house lost a lot of value when the housing bubble crashed. If we refinance now, they would combine the two mortgages and then we would have to pay PMI. so far everyone I've spoken to have said it is best that we stay with what we have and work at paying off the smaller mortgage a bit quicker if we can.
Anyone have any ideas?
You might want to consider prioritizing paying off the 2nd over saving and investing. The reason is if you DON'T itemize your taxes, paying that balance down is a risk-free 7.917% return. Even if you do itemize, it still might be worthwhile but it depends more on what returns you are expecting from your investments. If you DO itemize, then the true cost of the interest is likely between 5-6% depending on your situation.
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Home Value: ~$160k
Current Mortgage(s) balance(s): ~$95k
Current Rate: 2.625%
Current Payment: $950 including escrows
Original Term: 15 years (at refinance)
Years Remaining: 13 years
How long you plan on staying: As long as we can!
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Home Value: ~$270k
Current Mortgage(s) balance(s): ~$158k
Current Rate: 2.75%
Current Payment: $1225
Original Term: 15 years (at refinance)
Years Remaining: 13 years
How long you plan on staying: As long as we can!
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Home Value: ~$268k (Zillow estimate)
Current Mortgage(s) balance(s): ~$191k
Current Rate: 4.25%
Current Payment: $1024
Original Term: 30 years
Years Remaining: 27 years
How long you plan on staying: As long as we can
We are considering refinancing to a 15 year mortgage. Would it be worth it at the current mortgage rates? I did a quick search on bankrate and it looks like for a 15 year mortgage we might be able to get down to 3.1%. However, looking at my current bank (Wells Fargo) the best I could do is 3.645%. Looking at some smaller banks around I could get a 15 Year Fixed Rate - Secondary Market loan for 3.3%, but I don't know what a Secondary Market loan is.
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Home Value: ~$268k (Zillow estimate)
Current Mortgage(s) balance(s): ~$191k
Current Rate: 4.25%
Current Payment: $1024
Original Term: 30 years
Years Remaining: 27 years
How long you plan on staying: As long as we can
We are considering refinancing to a 15 year mortgage. Would it be worth it at the current mortgage rates? I did a quick search on bankrate and it looks like for a 15 year mortgage we might be able to get down to 3.1%. However, looking at my current bank (Wells Fargo) the best I could do is 3.645%. Looking at some smaller banks around I could get a 15 Year Fixed Rate - Secondary Market loan for 3.3%, but I don't know what a Secondary Market loan is.
By secondary market they probably just mean that they will not retain the loan, instead it will be sold to another servicer. Should be nothing to worry about, you may even end up back at Wells. No doubt refinancing to 3.3% will save you money if you stay in your home through the life of the mortgage. The hard question is if you want to absorb the additional $300 or so a month payment increase. This will probably come down to personality type. If you are the type who wants to get rid of debt ASAP, do it. If you don't mind having long term fixed rate debt because it allows you to invest more now, stick with what you have.
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I'm worried that by the time we have our debts paid off and have saved enough for a down payment (current estimate: 2 years) that me and my fiance are going to end up with a much higher interest rate. Pretty sure we already missed our chance for those 3.X% loans, and I'm concerned that by the time we do buy a house we will be looking at rates closer to 5%. Bummer.
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Home Value 750K (Zillow says 788)
Current Mortgage(s) balance(s) 595K
Current Rate 4.5%
Current Payment 3200
Original Term 30 years
Years Remaining 27.5 years
How long you plan on staying forever
This is actually our biggest dilemma as we pursue FI... Planning to aggressively pay down over next 15-18 mos to get below 417K so we can refi at a non-jumbo rate. At that time we will get into a 5/1 ARM. The dilemma is that I have 250K in student loans with rates from 2-2.875%. The mortgage interest is tax deductible where the SL interest is not, however based on some calculations our mortgage interest (after factoring in the tax deduction) is slightly below 3% so it still makes sense to pay down the mortgage. Especially since we could refi (hopefully) at 3% or below, which would cut our payment in half, allow us to pay down the student loans within 2 years, and then pay off the rest of the mortgage within the following 3 years. Thoughts? (Committing 10K per month for at least the next 15 mos to debt repayment, however at that time I will reduce my workload and may only pay 7-8K extra.)
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
loans.com - regular rate.
details here: https://www.loans.com.au/home
the comparison rate is 4.51 because of the $300 setup fee, and $220 house valuation cost.
The current available rate is 4.54 , but I got my loan when the advertised rate was 4.49, and my rate stayed at 4.49.
I'm pretty sure it is the cheapest in australia.
Thanks for the info!
(Also, @Marty998-- koalas may be able to kill with cuteness, but they can also be vicious. I have a two-inch scar on my arm from a koala bite about seven years ago. Don't think she meant it- she was severely dehydrated, cornered and acting in self-defense... but it got quite badly infected.)
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@shellio, that's some serious debt load. Based on the details, it's obvious you have the income to back that up, so good for you.
4.5% (net 3%) is a great rate.
2.875% is a great rate.
How would getting a refi at 3% or below cut your payment in half? Is this due to the 5/1 ARM/interest only payment?
If you plan on staying in your home forever I would focus less on paying down these debts and more on investing. I hope you are at least taking advantage of whatever tax advantaged accounts you have available to you. Every year is use it or lose it. Market returns over a 27.5 year mortgage should far exceed your interest carry, particularly at a net 3%.
All that said, your plan is a good one if getting rid of all that debt is your main goal.
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Thanks, Cheddar. I contribute to a 403b at work, 5%, and my employer matches at 10%. I also put 3% into a 401K annually, increasing 1% each year. We are putting $ into Roths as well - there are several layers of old age retirement security being squirreled away. The ultimate goal is to work 50-60%, possibly even less. Yes, I know we could almost certainly get better returns by investing, but with almost a million dollars (at least that's where we started) in debt, the idea of being FI is worth more to us than the $ at this point. If we refi 417K at 3% or less, payment should be in the range of 1700-1800 I believe.
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Home Value 750K (Zillow says 788)
Current Mortgage(s) balance(s) 595K
Current Rate 4.5%
Current Payment 3200
Original Term 30 years
Years Remaining 27.5 years
How long you plan on staying forever
This is actually our biggest dilemma as we pursue FI... Planning to aggressively pay down over next 15-18 mos to get below 417K so we can refi at a non-jumbo rate. At that time we will get into a 5/1 ARM. The dilemma is that I have 250K in student loans with rates from 2-2.875%. The mortgage interest is tax deductible where the SL interest is not, however based on some calculations our mortgage interest (after factoring in the tax deduction) is slightly below 3% so it still makes sense to pay down the mortgage. Especially since we could refi (hopefully) at 3% or below, which would cut our payment in half, allow us to pay down the student loans within 2 years, and then pay off the rest of the mortgage within the following 3 years. Thoughts? (Committing 10K per month for at least the next 15 mos to debt repayment, however at that time I will reduce my workload and may only pay 7-8K extra.)
Is there any chance you can split your existing mortgage into 2 loans, one for $417k at 15 years and one HELOC or 2nd term note at a slightly higher fixed rate or lower floating rate? This would allow you to go ahead and fix your rate on most of your mortgage while rates are still low. From there, I would let the $417k ride just making the scheduled P&I payments as it would give you a great inflation hedge. Extra cash could then be directed towards the student loans or the 2nd which ever makes more sense base on the rate.
Are the student loan rates fixed or variable?
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Is there any chance you can split your existing mortgage into 2 loans, one for $417k at 15 years and one HELOC or 2nd term note at a slightly higher fixed rate or lower floating rate? This would allow you to go ahead and fix your rate on most of your mortgage while rates are still low. From there, I would let the $417k ride just making the scheduled P&I payments as it would give you a great inflation hedge. Extra cash could then be directed towards the student loans or the 2nd which ever makes more sense base on the rate.
Are the student loan rates fixed or variable?
Hmmmm that's an interesting thought regarding the mortgage... I was feeling stressed about the possibility of rates going up over the next 18 mos and not getting a low rate, even on a 5/1. I will look into it today! Thank you!
The student loan rates include 195K @2.875% and 45K variable at 2-2.76%. Since the 45K has the lowest total balance of any of our debt, I just figured that if rates skyrocket I will redirect extra payments there for a few months and knock it out.
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I was at 5.125 and unable to re-fi because it is no longer owner occupied. (We live overseas.) So we re-fied through the bank of my parents, who are now our mortgage holders, complete with a lien to keep it all official. Guaranteed returns for them (though they have more money than they need, and then some), my interest stays in the family, and I was able to get a great rate and set my own terms, within reason. (For example, we went with an 18 year term because that was the sweet spot where I was comfortable with the payments even with a lot of large and unpredictable changes on the horizon.)
Dad didn't quite have the full amount we needed for pay off. Well, he had it, but not in places he was comfortable liquidating, so we took money from an existing HELOC for the remainder. That's at 2.6%, IIRC, though it's variable.
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Home Value - £200k
Current Mortgage - under £70k
Current Rate - 1.6% we were on around 4% but the "deal" with the mortgage company ran out so we dropped to a tiny interest rate
Current Payment - £600 a month, we could pay less actually
Original Term - 25 years
Years Remaining - 12 years
How long you plan on staying - until early retirement so 10 years, or less, hopefully!:)
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The student loan rates include 195K @2.875% and 45K variable at 2-2.76%. Since the 45K has the lowest total balance of any of our debt, I just figured that if rates skyrocket I will redirect extra payments there for a few months and knock it out.
Listen to Cheddar, with those type of rates, it is hard to justify prepaying the debt to the extent you don't fully utilize your tax deferred accounts, even though you have a lot of it. With the type of cash flow you are talking about, you are probably in a very high tax bracket. I would at least max out the pre-tax accounts available to you before prepaying any debt, especially since you are planning to cut back in a few years. You should still have plenty leftover to attack debt with, probably more than you think, given the tax implications.
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Home Value - £200k
Current Mortgage - under £70k
Current Rate - 1.6% we were on around 4% but the "deal" with the mortgage company ran out so we dropped to a tiny interest rate
Current Payment - £600 a month, we could pay less actually
Original Term - 25 years
Years Remaining - 12 years
How long you plan on staying - until early retirement so 10 years, or less, hopefully!:)
I'm sure things are a bit different under the Union Jack, but I am assuming you had some type of adjustable rate mortgage and the floating rate actually turned out to be lower than the initial fixed rate which is great, the only problem being that rates could go up on you and fixing your rate now would result in a higher rate. If it were me, given the mortage balance, I'd probably just use any extra funds to build up the 'stache, if rates start climbing, you could then pay the mortgage down/off with the extra 'stached funds rather than refinancing into a higher rate.
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The student loan rates include 195K @2.875% and 45K variable at 2-2.76%. Since the 45K has the lowest total balance of any of our debt, I just figured that if rates skyrocket I will redirect extra payments there for a few months and knock it out.
Listen to Cheddar, with those type of rates, it is hard to justify prepaying the debt to the extent you don't fully utilize your tax deferred accounts, even though you have a lot of it. With the type of cash flow you are talking about, you are probably in a very high tax bracket. I would at least max out the pre-tax accounts available to you before prepaying any debt, especially since you are planning to cut back in a few years. You should still have plenty leftover to attack debt with, probably more than you think, given the tax implications.
Thanks so much for your feedback - so glad I happened to open this post today, I am working on a refi at 15 years fixed with a HELOC to top it off, I am so grateful!
How can I find out if I am maximizing my pretax deductions? Would I talk to an accountant? We have reached out to financial planners through a couple of different sources but they just want to sell us stuff. You and Cheddar make a valid point. It is hard to get past the emotional component of paying off those loans but I want to work on the best future for my family. Undergrad + grad school + med school + poor decisions have taken a toll on my net worth but I am very fortunate to be in a career that is both enjoyable and lucrative so I luckily have options.
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Home Value - £200k
Current Mortgage - under £70k
Current Rate - 1.6% we were on around 4% but the "deal" with the mortgage company ran out so we dropped to a tiny interest rate
Current Payment - £600 a month, we could pay less actually
Original Term - 25 years
Years Remaining - 12 years
How long you plan on staying - until early retirement so 10 years, or less, hopefully!:)
I'm sure things are a bit different under the Union Jack, but I am assuming you had some type of adjustable rate mortgage and the floating rate actually turned out to be lower than the initial fixed rate which is great, the only problem being that rates could go up on you and fixing your rate now would result in a higher rate. If it were me, given the mortage balance, I'd probably just use any extra funds to build up the 'stache, if rates start climbing, you could then pay the mortgage down/off with the extra 'stached funds rather than refinancing into a higher rate.
Yes, that is exactly what we are doing. :) I can understand how people want to pay off their mortgage early but I'm restraining myself. The media keeps running scare stories and Mark Carney (The banking version of George Clooney apparently!) keeps making noise about interest rate rises but I can't see it happening anytime soon. I'm hoping interest rates rise once our mortgage is paid off haha.
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The student loan rates include 195K @2.875% and 45K variable at 2-2.76%. Since the 45K has the lowest total balance of any of our debt, I just figured that if rates skyrocket I will redirect extra payments there for a few months and knock it out.
Listen to Cheddar, with those type of rates, it is hard to justify prepaying the debt to the extent you don't fully utilize your tax deferred accounts, even though you have a lot of it. With the type of cash flow you are talking about, you are probably in a very high tax bracket. I would at least max out the pre-tax accounts available to you before prepaying any debt, especially since you are planning to cut back in a few years. You should still have plenty leftover to attack debt with, probably more than you think, given the tax implications.
Thanks so much for your feedback - so glad I happened to open this post today, I am working on a refi at 15 years fixed with a HELOC to top it off, I am so grateful!
How can I find out if I am maximizing my pretax deductions? Would I talk to an accountant? We have reached out to financial planners through a couple of different sources but they just want to sell us stuff. You and Cheddar make a valid point. It is hard to get past the emotional component of paying off those loans but I want to work on the best future for my family. Undergrad + grad school + med school + poor decisions have taken a toll on my net worth but I am very fortunate to be in a career that is both enjoyable and lucrative so I luckily have options.
If you haven't found this website yet, take a look. Written by a doctor for doctors. We'd love to have you stick around here as well, but it might be more specific to your exact situation.
http://whitecoatinvestor.com/
Pretax deductions (BTW, I'm an accountant and there are many of us on this forum) are things like the following:
401K $17,500 limit (This is per employee, so you can both do one if you both work. If you own a practice the limits can be much higher).
HSA $6,350 family limit (I think, if not it's close).
Medical/Dental insurance
Then this is not pre-tax via your paycheck, but a tax deduction on your return:
Traditional IRA $5,500 limit (income threshold is ~$100K, so you would have to do a Roth IRA, or maybe a backdoor Roth IRA)
Here's so more reading on debt payoff vs. investing if you're interested:
http://forum.mrmoneymustache.com/ask-a-mustachian/let's-settle-this-with-a-vote-invest-or-payoff-debts/
http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/
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The student loan rates include 195K @2.875% and 45K variable at 2-2.76%. Since the 45K has the lowest total balance of any of our debt, I just figured that if rates skyrocket I will redirect extra payments there for a few months and knock it out.
Listen to Cheddar, with those type of rates, it is hard to justify prepaying the debt to the extent you don't fully utilize your tax deferred accounts, even though you have a lot of it. With the type of cash flow you are talking about, you are probably in a very high tax bracket. I would at least max out the pre-tax accounts available to you before prepaying any debt, especially since you are planning to cut back in a few years. You should still have plenty leftover to attack debt with, probably more than you think, given the tax implications.
Thanks so much for your feedback - so glad I happened to open this post today, I am working on a refi at 15 years fixed with a HELOC to top it off, I am so grateful!
How can I find out if I am maximizing my pretax deductions? Would I talk to an accountant? We have reached out to financial planners through a couple of different sources but they just want to sell us stuff. You and Cheddar make a valid point. It is hard to get past the emotional component of paying off those loans but I want to work on the best future for my family. Undergrad + grad school + med school + poor decisions have taken a toll on my net worth but I am very fortunate to be in a career that is both enjoyable and lucrative so I luckily have options.
If you haven't found this website yet, take a look. Written by a doctor for doctors. We'd love to have you stick around here as well, but it might be more specific to your exact situation.
http://whitecoatinvestor.com/
Pretax deductions (BTW, I'm an accountant and there are many of us on this forum) are things like the following:
401K $17,500 limit (This is per employee, so you can both do one if you both work. If you own a practice the limits can be much higher).
HSA $6,350 family limit (I think, if not it's close).
Medical/Dental insurance
Then this is not pre-tax via your paycheck, but a tax deduction on your return:
Traditional IRA $5,500 limit (income threshold is ~$100K, so you would have to do a Roth IRA, or maybe a backdoor Roth IRA)
Here's so more reading on debt payoff vs. investing if you're interested:
http://forum.mrmoneymustache.com/ask-a-mustachian/let's-settle-this-with-a-vote-invest-or-payoff-debts/
http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/
Yep, I also would not pay down either loan given your tax bracket. I just got a jumbo loan and the rate was less than a conventional rate. Some lenders really want these on their books right now, so maybe look into refinancing the full amount right now, without paying it down. Still, the rate is good at a high tax bracket.
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Home Value: $300,000 for sure, or $315,000 is I were to believe Zillow
Current Mortgage(s) balance(s): $209,000
Current Rate: 4.375%
Current Payment: $1300, including insurance and property tax
Original Term: 30 yrs
Years Remaining: 29 years
How long you plan on staying: 5 - 10 years?
I just recently refinanced. Couldn't get a lower rate, because it is considered an investment property. (I rent out the "main" house and live in my Accessory Dwelling Unit).
I am going to throw some extra cash at the mortgage in the next few months, because I want to see the balance begin with the number 1 instead of the number 2 by the end of the year--purely for psychological reasons. Other than that, I am not in a big hurry to pay it down--I would rather max out my 401K.
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Home Value: About $250,000 according to Zillow (however purchased in 2006 for $320, 000)
Current Mortgage(s) balance(s) We have 2 because when we purchased we put 10% down , and then a a mortgage for the 80% and one for 10%. The balances are A: $230114.02 and B: $23240.55
Current Rate A:4.875% and B: 7.917%
Current Payment: A: 1847.77 (includes taxes and insurance) and B: $235
Original Term: 30 years for both
Years Remaining: A:25 years b: 22 years
How long you plan on staying: no intentions of moving
I have tried to refinance, but we are currently barely breaking even. our house lost a lot of value when the housing bubble crashed. If we refinance now, they would combine the two mortgages and then we would have to pay PMI. so far everyone I've spoken to have said it is best that we stay with what we have and work at paying off the smaller mortgage a bit quicker if we can.
Anyone have any ideas?
Sorry, but the best thing to do now is stay the course. You may be able to roll off a portion of the second with a 0% credit card balance transfer and reduce your rate a little. For example:
You are paying $500/mo extra on the second. You get an offer for $7500 card with 3% transfer fee and 0% for 12 months. You transfer $6000 to the card and pay it off in 12 months. Don't be fooled into thinking this reduces your rate to 3% though. The 3% is charged on the entire $6000 upfront, but your average balance over the course of 12 months is only about $3000, so the effective rate is closer to 6%. A little better than 7.9% though.
Chase Slate is currently offering 0% for 15 months with no balance transfer fees.
https://creditcards.chase.com/credit-cards/slate.aspx (https://creditcards.chase.com/credit-cards/slate.aspx)
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
It would probably be worth a refi if you can find a 10 year mortgage at 3% with closing costs under $2k or so. Or you could look at moving the remaining balance onto a floating rate HELOC (and continue making P&I payments) with very little closing costs if you were willing to pay down the balance in a hurry if rates go up.
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
loans.com - regular rate.
details here: https://www.loans.com.au/home
the comparison rate is 4.51 because of the $300 setup fee, and $220 house valuation cost.
The current available rate is 4.54 , but I got my loan when the advertised rate was 4.49, and my rate stayed at 4.49.
I'm pretty sure it is the cheapest in australia.
Thanks for the info!
(Also, @Marty998-- koalas may be able to kill with cuteness, but they can also be vicious. I have a two-inch scar on my arm from a koala bite about seven years ago. Don't think she meant it- she was severely dehydrated, cornered and acting in self-defense... but it got quite badly infected.)
I know some people who act like that!
These loans.com.au deals looks very enticing. Even for a big bad bank staff member like me.
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
It would probably be worth a refi if you can find a 10 year mortgage at 3% with closing costs under $2k or so. Or you could look at moving the remaining balance onto a floating rate HELOC (and continue making P&I payments) with very little closing costs if you were willing to pay down the balance in a hurry if rates go up.
HEL/HELOC is probably the way to go for a loan that small. Closing costs eat you alive on a formal refi.
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
It would probably be worth a refi if you can find a 10 year mortgage at 3% with closing costs under $2k or so. Or you could look at moving the remaining balance onto a floating rate HELOC (and continue making P&I payments) with very little closing costs if you were willing to pay down the balance in a hurry if rates go up.
HEL/HELOC is probably the way to go for a loan that small. Closing costs eat you alive on a formal refi.
I just looked at my closing costs from the last time we refinanced and they were over $4K with no points. I also don't want to stretch the term of the loan out longer than what I've got left. Will banks even do an 8 year loan?
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Home Value (1) $175,000 (2) $182,000 [future retirement home]
Current Mortgage(s) balance(s) (1) Paid in full (2) $139,000
Current Rate (1) Was 7.25 before paid off in 2009 (2) 2.25% APR 3/1
Current Payment (1) Paid off (2) $535/mt
Original Term (1) 30 yr (2) 30 yr
Years Remaining (1) Paid off (2) 29.5 yrs [will pay off balance before APR rate changes]
How long you plan on staying (1) 1 yr to retirement (2) Once retired, till death.
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
It would probably be worth a refi if you can find a 10 year mortgage at 3% with closing costs under $2k or so. Or you could look at moving the remaining balance onto a floating rate HELOC (and continue making P&I payments) with very little closing costs if you were willing to pay down the balance in a hurry if rates go up.
HEL/HELOC is probably the way to go for a loan that small. Closing costs eat you alive on a formal refi.
I just looked at my closing costs from the last time we refinanced and they were over $4K with no points. I also don't want to stretch the term of the loan out longer than what I've got left. Will banks even do an 8 year loan?
$4k is higher than what mine have been, but it probably varies by state/lender. A bank may be willing to do a "in house" loan for you at 8 years, but I don't think the rates will be as good as a conventional mortgage, but you never know. I'd go ahead and tell them what you want and get 4-5 quotes and just see what comes back. It shouldn't cost anything to shop...
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Home Value $185,000
Current Mortgage(s) balance(s) $176,000
Current Rate 4.6
Current Payment $1330,
Original Term. 30 years
Years Remaining. 29 years ,6 months
How long you plan on staying. Im not sure
Hello all this is my first post. I wanted to share my situation with you because no one that I know agrees with my game plan here so I welcome your advice. I bought this home prematurely with only 5% saved for a down payment. I want to fix the wrong of not waiting until I had %20 down. I now pay roughly $100 in pmi. Since I bought it I've spent very little for furnishings. I few curtains, some new dishes, etc. but no major purchases such as furniture. My goal right now is to save 25k, I'm over half way there, and refi as soon as possible which should be next spring. I would then get a 15 year loan hopefully around 3.5%. This would make my payments less than $100 dollars more a month but I'd save $1000 a month in years 16-30 from having no mortgage. I would also like to maybe pay extra to pay it off in less time as well. Or should I refi to a 30 year loan, or stick with what I got and invest the 25k. I have very little in 401k right now(that's for my next question in another thread!) I'm 34, and within the next few years I will marry my girlfriend and have kid(s). Thanks for any advice. Sorry this is so long maybe I should have done a case study lol.
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Home Value $185,000
Current Mortgage(s) balance(s) $176,000
Current Rate 4.6
Current Payment $1330,
Original Term. 30 years
Years Remaining. 29 years ,6 months
How long you plan on staying. Im not sure
Hello all this is my first post. I wanted to share my situation with you because no one that I know agrees with my game plan here so I welcome your advice. I bought this home prematurely with only 5% saved for a down payment. I want to fix the wrong of not waiting until I had %20 down. I now pay roughly $100 in pmi. Since I bought it I've spent very little for furnishings. I few curtains, some new dishes, etc. but no major purchases such as furniture. My goal right now is to save 25k, I'm over half way there, and refi as soon as possible which should be next spring. I would then get a 15 year loan hopefully around 3.5%. This would make my payments less than $100 dollars more a month but I'd save $1000 a month in years 16-30 from having no mortgage. I would also like to maybe pay extra to pay it off in less time as well. Or should I refi to a 30 year loan, or stick with what I got and invest the 25k. I have very little in 401k right now(that's for my next question in another thread!) I'm 34, and within the next few years I will marry my girlfriend and have kid(s). Thanks for any advice. Sorry this is so long maybe I should have done a case study lol.
Call your current lender and see what they would want to get rid of your PMI, lender's rules on this vary greatly. Think long and hard about how long you might stay in your home, even a range would help, say more than 2 -3 years or less than 2-3 years. This is one of the biggest factors in determining if it makes sense to refi. What does the GF and future wife think about the house? Do you like your job? Is it close to work for both of you? How is the neighborhood? Is it a place where you would want to raise kids?
As far as the 15 year vs 30 year goes, this is a little harder to say. With a 30 year, you are paying more for flexibility. From your post it sounds like you might still need some flexibility over the next few years!
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Home value. $280,000
Current Mortgage(s) balance(s). $54,140
Current Rate. 5.0
Current Payment. $1140 (462 Principal, 225 interest, 452 taxes)
Original Term. 15 years
Years Remaining 8.5
How long you plan on staying. 20
It would probably be worth a refi if you can find a 10 year mortgage at 3% with closing costs under $2k or so. Or you could look at moving the remaining balance onto a floating rate HELOC (and continue making P&I payments) with very little closing costs if you were willing to pay down the balance in a hurry if rates go up.
HEL/HELOC is probably the way to go for a loan that small. Closing costs eat you alive on a formal refi.
I just looked at my closing costs from the last time we refinanced and they were over $4K with no points. I also don't want to stretch the term of the loan out longer than what I've got left. Will banks even do an 8 year loan?
Quicken Loans offers a "Choose your term" program that goes down to 8 years. The rate is probably the same as a 10 year mortgage. I don't know what their fees are like, but if you shop around and get a quote from a competitor with low fees, they will probably negotiate with you. Try going with a low-cost credit union first and have Quicken match the rate and fees. That would be my strategy.
Full disclosure: I work for a competitor.
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
loans.com - regular rate.
details here: https://www.loans.com.au/home
the comparison rate is 4.51 because of the $300 setup fee, and $220 house valuation cost.
The current available rate is 4.54 , but I got my loan when the advertised rate was 4.49, and my rate stayed at 4.49.
I'm pretty sure it is the cheapest in australia.
Thanks for the info!
(Also, @Marty998-- koalas may be able to kill with cuteness, but they can also be vicious. I have a two-inch scar on my arm from a koala bite about seven years ago. Don't think she meant it- she was severely dehydrated, cornered and acting in self-defense... but it got quite badly infected.)
I know some people who act like that!
These loans.com.au deals looks very enticing. Even for a big bad bank staff member like me.
surely your bank can match it, especially for you?
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Home Value $185,000
Current Mortgage(s) balance(s) $176,000
Current Rate 4.6
Current Payment $1330,
Original Term. 30 years
Years Remaining. 29 years ,6 months
How long you plan on staying. Im not sure
Hello all this is my first post. I wanted to share my situation with you because no one that I know agrees with my game plan here so I welcome your advice. I bought this home prematurely with only 5% saved for a down payment. I want to fix the wrong of not waiting until I had %20 down. I now pay roughly $100 in pmi. Since I bought it I've spent very little for furnishings. I few curtains, some new dishes, etc. but no major purchases such as furniture. My goal right now is to save 25k, I'm over half way there, and refi as soon as possible which should be next spring. I would then get a 15 year loan hopefully around 3.5%. This would make my payments less than $100 dollars more a month but I'd save $1000 a month in years 16-30 from having no mortgage. I would also like to maybe pay extra to pay it off in less time as well. Or should I refi to a 30 year loan, or stick with what I got and invest the 25k. I have very little in 401k right now(that's for my next question in another thread!) I'm 34, and within the next few years I will marry my girlfriend and have kid(s). Thanks for any advice. Sorry this is so long maybe I should have done a case study lol.
Call your current lender and see what they would want to get rid of your PMI, lender's rules on this vary greatly. Think long and hard about how long you might stay in your home, even a range would help, say more than 2 -3 years or less than 2-3 years. This is one of the biggest factors in determining if it makes sense to refi. What does the GF and future wife think about the house? Do you like your job? Is it close to work for both of you? How is the neighborhood? Is it a place where you would want to raise kids?
As far as the 15 year vs 30 year goes, this is a little harder to say. With a 30 year, you are paying more for flexibility. From your post it sounds like you might still need some flexibility over the next few years!
Thanks. I will call them soon. I never even thought about that.
As far as how long we will be here, I think it will be for a long time. We are in a good neighborhood with many good features. But anything can happen and I just want to be prepared and opportunistic. For example a similar house up the street is listed for $70k more than what I paid for mine. I know they won't get that, but I'm keeping a close eye just in case. I would sell in a minute if I knew I could make money already.
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@So Close and @Cheddar Stacker - THANK YOU! I was learning a lot from reading MMM blog posts but this simple thread has helped me so much. We close tomorrow on a 3.5%, 10 year conventional refinance with an additional $180K on a HELOC. That LOC is 4-5% but right after closing we will apply for a HELOC special through US Bank with a 5 month introductory rate of 1.5%. (They couldn't do concurrent closing so we had to go with another bank's HELOC first.) Hoping to pay off the HELOC (after introductory rate it adjusts up, starting at 3.9%) in 2 years. Also - Cheddar, I've seen that site but find this one more useful for the like-minded frugality/lifestyle info. Thank you. One more thing - Cheddar, I had no idea this was available but I'm now maxing out contributions for both a 403b and a 457 through my employer, and the employer contributes to a 401a for me. Thank goodness you got to me before 2014 ended! I hope you guys are still reading this.
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@So Close and @Cheddar Stacker - THANK YOU! I was learning a lot from reading MMM blog posts but this simple thread has helped me so much. We close tomorrow on a 3.5%, 10 year conventional refinance with an additional $180K on a HELOC. That LOC is 4-5% but right after closing we will apply for a HELOC special through US Bank with a 5 month introductory rate of 1.5%. (They couldn't do concurrent closing so we had to go with another bank's HELOC first.) Hoping to pay off the HELOC (after introductory rate it adjusts up, starting at 3.9%) in 2 years. Also - Cheddar, I've seen that site but find this one more useful for the like-minded frugality/lifestyle info. Thank you. One more thing - Cheddar, I had no idea this was available but I'm now maxing out contributions for both a 403b and a 457 through my employer, and the employer contributes to a 401a for me. Thank goodness you got to me before 2014 ended! I hope you guys are still reading this.
Glad we could help, and congrats on all the progress. Getting a 403b and a 457 is a great advantage most people don't have available. If you're still up for more reading, this is a good post on that topic from an MMM forum member: http://rootofgood.com/make-six-figure-income-pay-no-tax/. You likely make too much to pull off what they did, but still worth a read for some ideas.
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@So Close and @Cheddar Stacker - THANK YOU! I was learning a lot from reading MMM blog posts but this simple thread has helped me so much. We close tomorrow on a 3.5%, 10 year conventional refinance with an additional $180K on a HELOC. That LOC is 4-5% but right after closing we will apply for a HELOC special through US Bank with a 5 month introductory rate of 1.5%. (They couldn't do concurrent closing so we had to go with another bank's HELOC first.) Hoping to pay off the HELOC (after introductory rate it adjusts up, starting at 3.9%) in 2 years. Also - Cheddar, I've seen that site but find this one more useful for the like-minded frugality/lifestyle info. Thank you. One more thing - Cheddar, I had no idea this was available but I'm now maxing out contributions for both a 403b and a 457 through my employer, and the employer contributes to a 401a for me. Thank goodness you got to me before 2014 ended! I hope you guys are still reading this.
Awesome, glad it worked out!
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Home Value: $138k - $146k
Current Mortgage(s) balance(s): $143k
Current Rate: 5%
Current Payment: $1,268 ($1,026 principal/interest, $79 PMI/MIP, $113 tax, $50 insurance)
Original Term: 30 years
Years Remaining: 26 years (or 17 more years at current minimum payments since we've paid extra towards principal)
How long you plan on staying: less than 1 year, though that is dependent on my wife finding a job
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Home Value: $138k - $146k
Current Mortgage(s) balance(s): $143k
Current Rate: 5%
Current Payment: $1,268 ($1,026 principal/interest, $79 PMI/MIP, $113 tax, $50 insurance)
Original Term: 30 years
Years Remaining: 26 years (or 17 more years at current minimum payments since we've paid extra towards principal)
How long you plan on staying: less than 1 year, though that is dependent on my wife finding a job
Probably not worth it if you plan on moving out in less than a year. Although if you plan on keeping the house as a rental, it might be worth it, the LTV and PMI is going to be a wildcard though. If you decide to go this route, feel free to post any quotes you get and we can sift through them.
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Canada vs USA mortgage differences. A bit OT but with the comments so far, this sorta fits.
On the surface, CDN banks and US banks appear to offer similar products, for kinda similar rates. Both have fixed and variable, with similar amortization offers, etc... I was able to get a 2.4% variable recently...
But they are vastly different under the surface. Here are a few of the quirky differences, just for interest:
USA... Jumbo loans cost more
CDN .. Jumbo loans come with discounts to get your business.. Qualify for more than $500k? Here is 0.2% discount...thank you for you money..
USA. Pay MTG fees as points or broker fees upfront
CDN. MTG is free of fees (most bank fees anyway other than lawyer and appraisal), but the sting you for thousands if you refi outside of their terms, move or break the MTG early.
USA.. Fixed rate makes sense. Great value in some fixed rate products if you know your needs and shop.
CDN. 5 yr variable, baby. Breaking a fixed rate before your term, eg 5yr, costs a lot, breaking a variable costs 3month interest only. Fixed rate is only for those that need the security, and costs a lot more, especially if more than 5yr term.
USA. Tax break on MTG
CDN. Pay it off asap after your max retirement savings is done.(others may differ here). Interest is pure cost like other debts.
USA. Property taxes increase with house prices, if your city goes up, so do your taxes. Tax percentage is fixed. 1.25% on a high COL area is insane. Yet Realtors and states advertise those areas as low property tax regions. Huh?
CDN. Cities need to vote in a property tax revenue increase. If your home goes up the average for your city, then no tax increase. In an increasing market, the tax percentage automatically adjusts downward. Unless they vote for budget increases, of course. A high COL city may actually have lower $property taxes than a small prairie city with snow removal.
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Our mortgage rate is 2.75%. We got very lucky because we were able to take advantage of the financial crisis to buy an inexpensive house from motivated sellers and get it at an absolutely rock bottom interest rate. As you can imagine, we feel rather pleased with ourselves.
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Home Value: $138k - $146k
Current Mortgage(s) balance(s): $143k
Current Rate: 5%
Current Payment: $1,268 ($1,026 principal/interest, $79 PMI/MIP, $113 tax, $50 insurance)
Original Term: 30 years
Years Remaining: 26 years (or 17 more years at current minimum payments since we've paid extra towards principal)
How long you plan on staying: less than 1 year, though that is dependent on my wife finding a job
Probably not worth it if you plan on moving out in less than a year. Although if you plan on keeping the house as a rental, it might be worth it, the LTV and PMI is going to be a wildcard though. If you decide to go this route, feel free to post any quotes you get and we can sift through them.
Thanks. PMI is supposed to go away around August or so next year (paid for 5 years, 78% LTV), assuming I am correct that the LTV criteria for that is based on the initial loan value (~$192k). I've thought about the rental option but similar houses in my neighborhood are renting for only $1.1k/month (+/- $100). We'd also likely need a management company since we'd be moving out of state.
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i'm at 4.49% variable in Australia, which I think is the best mortgage available at the moment.
Is that a honeymoon rate and what does it revert to?
loans.com - regular rate.
details here: https://www.loans.com.au/home
the comparison rate is 4.51 because of the $300 setup fee, and $220 house valuation cost.
The current available rate is 4.54 , but I got my loan when the advertised rate was 4.49, and my rate stayed at 4.49.
I'm pretty sure it is the cheapest in australia.
4.49 is ridiculously good. My mortgage is at 4.88%, and that's just a honeymoon fee expiring next year! Thanks for this. Definitely something to check out.