Author Topic: Should I refinance to 15 yr?  (Read 4347 times)

mozar

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Should I refinance to 15 yr?
« on: August 16, 2014, 07:37:12 PM »
So I'm not so great at understanding market returns and taxes, can anyone explain?
« Last Edit: May 10, 2018, 12:05:59 PM by mozar »

rmendpara

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Re: Should I refinance to 15 yr?
« Reply #1 on: August 16, 2014, 07:54:18 PM »
On such a small loan, the refi fees/points may remove most of your savings.

zolotiyeruki

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Re: Should I refinance to 15 yr?
« Reply #2 on: August 16, 2014, 09:06:47 PM »
Yeah, take a look at your closing costs before you go anywhere.  In addition, here are a couple thoughts:
1)  Assuming you'll start with a $95k balance on the new mortgage, you'll go from paying (roughly) $5400/year in interest down to $3360/year.  Your total monthly payment would go up by about $100, but you'd be saving almost $200/mo in mortgage interest.  That's a lot.
2)  Conventional wisdom says that if you have extra cash flow, you'll be better off investing rather than paying down your mortgage faster.  In your case, however, because of the drop in interest rate, you'll be better off refinancing.*
3)  The other thing to consider is that investing that money (rather than paying down the mortgage) keeps it liquid and more easily available in case you need access to it.

My opinion:  run, don't walk, to refinance.  There's a boat load of savings.

* As an exercise, I threw together a *rough* spreadsheet that explores your exact scenario. (see attached)
« Last Edit: August 16, 2014, 09:23:30 PM by zolotiyeruki »

okashira

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Re: Should I refinance to 15 yr?
« Reply #3 on: August 16, 2014, 09:33:38 PM »
Closing costs are high? When I got my 15 year, my closing costs were like $250 after credit and all fees, including title, doc fees, etc. 3.0% rate.

I used box home loans.

justajane

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Re: Should I refinance to 15 yr?
« Reply #4 on: August 17, 2014, 08:37:50 AM »
Have you run the numbers comparing how much you would save if you just prepaid the 30 year loan? Or do you have a prepayment penalty? If you paid, say, an extra $200 or more a month, you might do better, since you don't have to pay the closing costs. I just think you should also factor in potential job loss and other eventualities. Think of the 30 year as a hedge against job loss. If you lose your job, the lower payment could be essential to staying afloat. I guess it just depends on how risk averse you are.

We ran the numbers on a 15 versus a 30 when we refinanced and opted for the lower payment of the 30 year with the option of prepayment.

mozar

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Re: Should I refinance to 15 yr?
« Reply #5 on: August 17, 2014, 08:50:13 AM »
I havn't run the numbers for prepay in awhile. (I'm allowed to prepay). I don't think it saves quite as much money as going down to a 3.5%, but I'll look again. If I lost my job having to pay an extra 100 won't be scary to me. If I was unemployed, $100 wouldn't be the difference between keeping or selling it.
I'll look into the other bank I am allowed to use. They might have lower closing costs, but the rate they quoted me was 4.8%
Refinancing seems like a no-brainer, even with the opportunity costs of that $100 in the market at 5%, compounding one a year would be 25,896 in 15 years.

zolotiyeruki

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Re: Should I refinance to 15 yr?
« Reply #6 on: August 17, 2014, 08:11:28 PM »
Have you run the numbers comparing how much you would save if you just prepaid the 30 year loan? Or do you have a prepayment penalty? If you paid, say, an extra $200 or more a month, you might do better, since you don't have to pay the closing costs. I just think you should also factor in potential job loss and other eventualities. Think of the 30 year as a hedge against job loss. If you lose your job, the lower payment could be essential to staying afloat. I guess it just depends on how risk averse you are.

We ran the numbers on a 15 versus a 30 when we refinanced and opted for the lower payment of the 30 year with the option of prepayment.
I actually ran the numbers (see the attachment above), and refinancing is a much better approach financially than just prepaying the 30-year loan.

Joel

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Re: Should I refinance to 15 yr?
« Reply #7 on: August 17, 2014, 08:20:49 PM »
It seems you are comparing apples to oranges. You are not including the 2k in closing costs or the 11k pay down you are making right now. You also are not comparing making the same payments. My guess is that the 1.5% interest rate decrease is likely not going to enough to cover the 2k in closing costs on that small of a balance. If it does, it won't be by much, and probably is not worth the hassle.

missj

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Re: Should I refinance to 15 yr?
« Reply #8 on: August 17, 2014, 08:22:54 PM »
I'm looking at the exact same situation, only on a loan roughly twice the size at 4.875% and the 15 yr refi is definitely a winning idea for me.

why are you using a mortgage broker instead of going straight to the bank?  they are a middle man that must get paid and that adds to your closing costs.  When you're dealing with such a small margin to begin with (because of the small loan) you can't afford to be paying a mortgage broker.
« Last Edit: August 17, 2014, 08:25:52 PM by missj »

usmarine1975

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Re: Should I refinance to 15 yr?
« Reply #9 on: August 17, 2014, 08:32:18 PM »
Have you checked with your current mortgage company. I have refinanced with the same bank and in some situations got less fees and cost up front.  Also call a credit union or local bank. Ask around I agree mortgage brokers are not the only avenue.

zolotiyeruki

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Re: Should I refinance to 15 yr?
« Reply #10 on: August 18, 2014, 05:58:32 AM »
It seems you are comparing apples to oranges. You are not including the 2k in closing costs or the 11k pay down you are making right now. You also are not comparing making the same payments. My guess is that the 1.5% interest rate decrease is likely not going to enough to cover the 2k in closing costs on that small of a balance. If it does, it won't be by much, and probably is not worth the hassle.
When I ran the numbers, I included the $11k difference, and it's still advantageous to refi to 15 years @ 3.5%. 

mozar

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Re: Should I refinance to 15 yr?
« Reply #11 on: August 18, 2014, 05:40:56 PM »
I guess I was talking to a loan officer then. I literally went to the website of the bank and called the number for refinancing they list on the site.
Not sure if there is anything I can do about closing costs for this particular bank. And there are only a couple of banks I'm allowed to use for my co-op.
I don't understand the spreadsheet actually, zolotiyeruki. Where is the interest paid?