Author Topic: Math help....refi to 15 yr mortgage vs. investing  (Read 2709 times)

tweezers

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Math help....refi to 15 yr mortgage vs. investing
« on: October 13, 2014, 04:26:42 PM »
I'm math challenged today, and apparently google challenged too.  Can someone point me to a calculator or check my math/logic to determine the better option in terms of refinancing from a 30 yr fixed to a 15 year fixed (in which payments will increase) vs. investing the difference. 

Details:
Current mortgage: 30 year fixed, 4.125%, monthly payment $1842 (just principal and interest), 26 years remaining on mortgage.
Refi mortgage: 15 year fixed, 2.98%, monthly payment $2434 (again, just P&I)

So monthly payment will increase by ~$600, but we'll be paying ~$136K less in interest overall.  Using a basic savings calculator starting at $600, contributing $600/month, and assuming 6% market growth for 15 years we'll have ~$176K, and $452K after 26 years (years remaining on mortgage).  To really answer this thought I have to figure out the return for the first 15 years (during which we have $600 to invest), and then from years 16-26 when we'll basically be mortgage-free and have the whole amount, right? 

This is mortifying (I do a lot of stats as part of my job but this is stumping me today).....refinancing seems the way to go, but I want the clarity of hard numbers before making a move, and right now its a bit fuzzy.  Help?   

okashira

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #1 on: October 13, 2014, 04:50:29 PM »
Here you go
https://www.dropbox.com/s/eod2qqzl8oceafr/15yr%20vs%2030yr.xlsx?dl=0

Would be equivalent to a 5.75% return in investing.

That is, if you keep the 30- year, and invest the difference in payments vs the 15 year, you would need to return 5.75% to break even at the end of 30 years compared to the 15 year. (the calculator also invests the freed cashflow of the 15 year at the end of 15 years at the specified rate)

Does not account for closing cost, or tax treatment.

Cheddar Stacker

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #2 on: October 13, 2014, 08:39:22 PM »
I keep a spreadsheet at work for this analysis. I've posted it here before as well but can't access it now. I think it was in a thread called "is your mortgage over 4.5%" or something similar.

Long story short, the 15 year wins if you plan to stay put less than 15 ish years, and the 30 year pulls way ahead beyond that if you invest the excess and attain a decent return. So there are many variables, but your timeline in the home is a very big factor.

tweezers

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #3 on: October 14, 2014, 09:37:45 AM »
Brilliant!!  This is exactly what I needed.  Thanks so much!  We'll stick with our current mortgage and invest the difference.

Bob W

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #4 on: October 15, 2014, 07:50:16 PM »
I'm guessing your house is expensive?  Might consider selling it when the market heats up next spring.   

okashira

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #5 on: October 15, 2014, 08:28:09 PM »
I'm guessing your house is expensive?  Might consider selling it when the market heats up next spring.

Yep. The payment on my 15 year @ 3.0% is $665. Their 30 year is $1900. That says something.
And I have roommates.


Here it comes:

"Oh, but...."

tweezers

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #6 on: October 15, 2014, 10:21:27 PM »
I'm guessing your house is expensive?  Might consider selling it when the market heats up next spring.

Yep. The payment on my 15 year @ 3.0% is $665. Their 30 year is $1900. That says something.
And I have roommates.


Here it comes:

"Oh, but...."

Wow.  Really? 

I appreciate you answering my question and sharing your spreadsheet, but I didn't ask for a holier-than-thou assessment of our spending, of which you know ridiculously little about.  We do have an expensive house, in part because of land associated with it and the fact that we live in a high COL area in the Pacific Northwest.  We're exceptionally happy with the house and the huge garden that produces a lot of our food, that the sub-division of the property into three lots will easily triple its value, and that I can walk to my flexible job that allows my husband to stay home with our children as we work towards becoming FI.  I respect that your financial decisions might differ from ours, and I don't think its too much to expect a similar level of respect; especially when your assumptions are wildly inaccurate.

Cheddar Stacker

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Re: Math help....refi to 15 yr mortgage vs. investing
« Reply #7 on: October 15, 2014, 10:31:42 PM »
Don't lose any sleep. Okashira likes to punch faces. Just do your thing. We are all different.  He/she is pretty hardcore.