Author Topic: Is your mortgage rate over 4.5%?  (Read 27292 times)

Gone Fishing

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Is your mortgage rate over 4.5%?
« on: August 27, 2014, 03:18:01 PM »
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
 

marty998

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Re: Is your mortgage rate over 4.5%?
« Reply #1 on: August 27, 2014, 03:47:15 PM »
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)

Primm

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Re: Is your mortgage rate over 4.5%?
« Reply #2 on: August 27, 2014, 04:25:15 PM »
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.

Gone Fishing

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Re: Is your mortgage rate over 4.5%?
« Reply #3 on: August 27, 2014, 06:07:37 PM »
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...

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #4 on: August 27, 2014, 06:24:19 PM »
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.

RWD

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Re: Is your mortgage rate over 4.5%?
« Reply #5 on: August 27, 2014, 06:47:37 PM »
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.

Dicey

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Re: Is your mortgage rate over 4.5%?
« Reply #6 on: August 27, 2014, 07:18:47 PM »
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!

Cecil

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Re: Is your mortgage rate over 4.5%?
« Reply #7 on: August 27, 2014, 07:28:47 PM »
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!

Self-employed-swami

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Re: Is your mortgage rate over 4.5%?
« Reply #8 on: August 27, 2014, 07:31:20 PM »
I'm at 2.99%

Outlier

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Re: Is your mortgage rate over 4.5%?
« Reply #9 on: August 27, 2014, 07:46:52 PM »
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.

Davids

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Re: Is your mortgage rate over 4.5%?
« Reply #10 on: August 27, 2014, 07:59:42 PM »
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. 

SummerLovin

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Re: Is your mortgage rate over 4.5%?
« Reply #11 on: August 27, 2014, 08:21:15 PM »
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.

RWD

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Re: Is your mortgage rate over 4.5%?
« Reply #12 on: August 27, 2014, 08:31:43 PM »
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.
« Last Edit: August 17, 2017, 08:37:27 AM by RWD »

oldtoyota

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Re: Is your mortgage rate over 4.5%?
« Reply #13 on: August 27, 2014, 08:57:59 PM »
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. =-)

horsepoor

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Re: Is your mortgage rate over 4.5%?
« Reply #14 on: August 27, 2014, 09:03:56 PM »
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

Self-employed-swami

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Re: Is your mortgage rate over 4.5%?
« Reply #15 on: August 27, 2014, 09:13:19 PM »
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

Calvawt

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Re: Is your mortgage rate over 4.5%?
« Reply #16 on: August 27, 2014, 10:38:18 PM »
Got 2.625% for a 15 year re-fi in early 2013.  One of my best moves ever!

gildedbutterfly

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Re: Is your mortgage rate over 4.5%?
« Reply #17 on: August 27, 2014, 10:47:16 PM »
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!)

marty998

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Re: Is your mortgage rate over 4.5%?
« Reply #18 on: August 28, 2014, 03:00:55 AM »
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!

boarder42

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Re: Is your mortgage rate over 4.5%?
« Reply #19 on: August 28, 2014, 04:45:42 AM »
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
« Last Edit: August 28, 2014, 05:41:37 AM by boarder42 »

TomTX

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Re: Is your mortgage rate over 4.5%?
« Reply #20 on: August 28, 2014, 05:28:48 AM »


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.

Jack

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Re: Is your mortgage rate over 4.5%?
« Reply #21 on: August 28, 2014, 05:48:41 AM »
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?
« Last Edit: August 28, 2014, 06:17:13 AM by Jack »

Timmmy

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Re: Is your mortgage rate over 4.5%?
« Reply #22 on: August 28, 2014, 06:26:45 AM »
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?

DragonSlayer

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Re: Is your mortgage rate over 4.5%?
« Reply #23 on: August 28, 2014, 07:29:00 AM »
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.

starguru

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Re: Is your mortgage rate over 4.5%?
« Reply #24 on: August 28, 2014, 07:38:07 AM »
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. 

Gone Fishing

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Re: Is your mortgage rate over 4.5%?
« Reply #25 on: August 28, 2014, 07:50:53 AM »
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.

Dicey

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Re: Is your mortgage rate over 4.5%?
« Reply #26 on: August 28, 2014, 08:01:51 AM »
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.

Gone Fishing

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Re: Is your mortgage rate over 4.5%?
« Reply #27 on: August 28, 2014, 08:10:55 AM »
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.

Gone Fishing

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Re: Is your mortgage rate over 4.5%?
« Reply #28 on: August 28, 2014, 08:19:18 AM »
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? 

Gone Fishing

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Re: Is your mortgage rate over 4.5%?
« Reply #29 on: August 28, 2014, 08:21:26 AM »
I see everyone is enjoying bragging about the great rates they locked in at the bottom of the market!

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #30 on: August 28, 2014, 08:23:55 AM »
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.

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #31 on: August 28, 2014, 08:24:56 AM »
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.

Timmmy

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Re: Is your mortgage rate over 4.5%?
« Reply #32 on: August 28, 2014, 09:06:24 AM »
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.

starguru

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Re: Is your mortgage rate over 4.5%?
« Reply #33 on: August 28, 2014, 09:08:40 AM »
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?

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #34 on: August 28, 2014, 09:14:47 AM »
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.

starguru

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Re: Is your mortgage rate over 4.5%?
« Reply #35 on: August 28, 2014, 09:22:09 AM »
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. 

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #36 on: August 28, 2014, 09:46:42 AM »
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.
« Last Edit: August 29, 2014, 11:06:25 AM by Cheddar Stacker »

ketchup

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Re: Is your mortgage rate over 4.5%?
« Reply #37 on: August 28, 2014, 09:56:24 AM »
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.

cynthia1848

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Re: Is your mortgage rate over 4.5%?
« Reply #38 on: August 28, 2014, 09:58:53 AM »
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.

starguru

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Re: Is your mortgage rate over 4.5%?
« Reply #39 on: August 28, 2014, 10:21:54 AM »
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).

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #40 on: August 28, 2014, 10:28:52 AM »

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.

starguru

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Re: Is your mortgage rate over 4.5%?
« Reply #41 on: August 28, 2014, 10:36:57 AM »

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. 

shotgunwilly

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Re: Is your mortgage rate over 4.5%?
« Reply #42 on: August 28, 2014, 11:19:51 AM »
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."

dragoncar

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Re: Is your mortgage rate over 4.5%?
« Reply #43 on: August 28, 2014, 01:34:48 PM »
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

hybrid

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Re: Is your mortgage rate over 4.5%?
« Reply #44 on: August 28, 2014, 02:21:11 PM »
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.

chaitea

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Re: Is your mortgage rate over 4.5%?
« Reply #45 on: August 28, 2014, 02:56:12 PM »
Quote
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.
« Last Edit: August 28, 2014, 02:58:37 PM by chaitea »

nvmama

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Re: Is your mortgage rate over 4.5%?
« Reply #46 on: August 28, 2014, 03:38:15 PM »
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?

Poorman

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Re: Is your mortgage rate over 4.5%?
« Reply #47 on: August 28, 2014, 03:44:50 PM »
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.

Cheddar Stacker

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Re: Is your mortgage rate over 4.5%?
« Reply #48 on: August 28, 2014, 06:57:57 PM »
Good point poorman. I haven't done that option but I've read here about people using it. Worth consideration for sure.

windypig

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Re: Is your mortgage rate over 4.5%?
« Reply #49 on: August 28, 2014, 07:48:53 PM »
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.