Author Topic: Mortgage Refi / Setting up for Investing  (Read 6136 times)

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Mortgage Refi / Setting up for Investing
« on: March 25, 2015, 05:43:15 AM »
Need a 2nd (or 3rd opinion)

I have a $200k 30yr mortgage at 4.875%, 25 years left to go

My house appraised ar $212k, seems consevative, but is what it is...

I can do a new 15yr @ 3.375%, will have same monthly payment including insurance and tex escrow, but need to throw $30k into it to get to 80% LTV. 

I have very little other debt, and a savings/investment account of about $100k at the moment and significant positive monthly savings.   So the $30k is making a dent, but I can save $3-5k per month going forward

Goal here is to deal with mortgage,  pay off in 15yrs or less, and save the additional interest expense.  Going forward, I will invest my monthly savings

Throwing $30k into this seems like a big step, but I think the return is worth it...am I missing anything?

Also, closing costs are quite low, should be under $2k.
« Last Edit: March 25, 2015, 05:58:49 AM by moustache1979 »

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #1 on: March 25, 2015, 06:08:16 AM »
you should be able to get a 30 year rate close to that and you will be miles ahead towards FIRE if you REFI to a 30 year.  i just found a 30 year rate at 3.5% assuming you invest the difference you will be over 2 years ahead by going to a 30 year even at 3.8% vs a 15 year. 

http://michaelbluejay.com/house/15vs30.html

play around here.  carrying a mortgage with a low interest rate is a good thing.  And you will come out WAY ahead after 30 years.

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #2 on: March 25, 2015, 06:22:28 AM »
I like the idea of the 15yr despite the added savings.   I don't entirely trust myself (or the market) and like the certainty of debt reduction

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #3 on: March 25, 2015, 06:40:51 AM »
just curious what your FIRE plan is since you dont trust the market.  are you not going to be invested at all?  b/c the 4% SWR is based on the market.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #4 on: March 25, 2015, 06:43:33 AM »
and also just so you know it is less secure to pay down a mortgage than it is to invest in the market at todays current mortgage rates.  A tough pill for many to swallow but all numbers back this up.  So while trying to be more secure you will in fact be less secure.

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1687
Re: Mortgage Refi / Setting up for Investing
« Reply #5 on: March 25, 2015, 07:25:49 AM »
I have no problem with your plan and think it is a good one (whether 15 or 30 year).

Boarder42, please elaborate:  "...it is less secure to pay down a mortgage than it is to invest in the market at todays current mortgage rates..."  Paying down debt is a 100% guaranteed return, isn't it?

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #6 on: March 25, 2015, 08:39:59 AM »
my FI plan is to utilize future cash flow for Investments and to pay down remainder of mortgage and debts basically on auto-pilot through monthly payments.

Franklin

  • Stubble
  • **
  • Posts: 204
  • Location: Rochester, NY
Re: Mortgage Refi / Setting up for Investing
« Reply #7 on: March 25, 2015, 08:48:38 AM »
You have a good plan.  There will be plenty of people trying to convince you that a mortgage is "good" debt.  Ask a rich guy if he agrees.  Then follow your gut.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #8 on: March 25, 2015, 09:02:09 AM »
my FI plan is to utilize future cash flow for Investments and to pay down remainder of mortgage and debts basically on auto-pilot through monthly payments.

its a fine plan just understand it will increase the time it takes you to reach FIRE.  Increasingly so if you're not currently maxing out all tax advantaged accounts.

rough estimate is 2-3 years extra work if you're already maxing your accounts

could be as many as 5 years if you're not or more.  but thats just a ballpark.

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #9 on: March 25, 2015, 09:11:31 AM »
I am maxing out all tax free options and 401k match.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #10 on: March 25, 2015, 09:17:19 AM »
what do you mean all tax free option and 401k match .. i assume that means you arent putting 18k in your 401k ... probably you are closer to 6k give or take. giving you 12k of tax back assuming 25% bracket and 6% state you're looking at losing 3700+ annually by putting it in your mortgage.  plus you're losing the gains and the tax breaks from the interest.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #11 on: March 25, 2015, 09:20:53 AM »
if you can give me your real numbers i can make you a spread sheet that shows you now many years of work you're costing yourself.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #12 on: March 25, 2015, 09:22:29 AM »
and to the ask a rich guy comment.  A rich guy isnt trying to FIRE as early as possible and has enough money it doesnt really matter if you want to get to this point go for it but thats not really the goal of FIRE.

I'll bet if you ask the savviest of rich guys they hold debt right now b/c of how cheap it is.

Franklin

  • Stubble
  • **
  • Posts: 204
  • Location: Rochester, NY
Re: Mortgage Refi / Setting up for Investing
« Reply #13 on: March 25, 2015, 09:41:04 AM »
and to the ask a rich guy comment.  A rich guy isnt trying to FIRE as early as possible and has enough money it doesnt really matter if you want to get to this point go for it but thats not really the goal of FIRE.

I'll bet if you ask the savviest of rich guys they hold debt right now b/c of how cheap it is.

Agreed.  I know a lot of rich guys leveraging debt.  Just not on their residence. 

thd7t

  • Handlebar Stache
  • *****
  • Posts: 1340
Re: Mortgage Refi / Setting up for Investing
« Reply #14 on: March 25, 2015, 10:49:21 AM »
Need a 2nd (or 3rd opinion)

I have a $200k 30yr mortgage at 4.875%, 25 years left to go

My house appraised ar $212k, seems consevative, but is what it is...

I can do a new 15yr @ 3.375%, will have same monthly payment including insurance and tex escrow, but need to throw $30k into it to get to 80% LTV. 

I have very little other debt, and a savings/investment account of about $100k at the moment and significant positive monthly savings.   So the $30k is making a dent, but I can save $3-5k per month going forward

Goal here is to deal with mortgage,  pay off in 15yrs or less, and save the additional interest expense.  Going forward, I will invest my monthly savings

Throwing $30k into this seems like a big step, but I think the return is worth it...am I missing anything?

Also, closing costs are quite low, should be under $2k.
I recommend refinancing for the reasons that you've laid out.  Paying down the 30k will have an excellent ROI, compared to accepting PMI.  The effective interest rate on the 30k would be 3.375%+ whatever portion of $30k the PMI comes to.  This leads to a really high effective rate, which goes up over the period paying PMI, because PMI doesn't decrease like interest.

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #15 on: March 25, 2015, 12:31:50 PM »
PMI for sure not worth it - i ran the math.

I am putting $18k into the 401k and getting a match of about $15k per year. 

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #16 on: March 25, 2015, 01:30:29 PM »
do you have PMI now?

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #17 on: March 25, 2015, 02:14:58 PM »
nope

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #18 on: March 25, 2015, 03:00:01 PM »
there are alot of things that come into play on this refinance then.  Does the REFI even justify having to pony up 30k now plus all it would have earned. 

Current mortgage owed after 15 years
108k

capital used to REFI = 30,000 + 3,000REFI cost

value of 33k after 15 years compounded at 7% 91,084

so assuming your payment doesnt change at all it makes sense but my calculation show it does go up around 50 bucks a month and if you compound that your annually at 600 extra you will have 107k left after 15 years which is dang close to break even either way. 

The other option would be to REFI to a 30 year at around 1% lower than you're at now and you'll be way ahead. you still owe 108k at the end of 15 years but your payment now will drop from around 1154 to 799.  over 15 years just compounding that difference of 355 per month you would have 114k in the bank more than what you owe on your loan.

so if the payment is exactly the same on the 15 year you come out ahead with the REFI.

assuming its not you end up at breakeven by REFI to a 15.

best way to comeout ahead in the next 15 years. is to REFI to a 30

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #19 on: March 25, 2015, 03:04:20 PM »
thank you - super helpful.     Appreciate you running the #'s

SherrieRose

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Mortgage Refi / Setting up for Investing
« Reply #20 on: March 25, 2015, 09:02:30 PM »
I have a similar dilemma.  I want to know if it would be better to re-fi or invest?  My current mortgage is 4.825 and I owe about 210K.  I was originally planning to go to an 8 year refi which would drop my interest rate to 3.125%.  It would also raise my monthly payment by $100 and I would need to pay down $100K with approximately 5k of closing costs.  The advantage is that I would be paying far more principal per month and my mortgage would be only about $110K.  I could invest with Vanguard and let it grow, continue to pay the current monthly bill then pay down ASAP. 

I really hate the 5K (4800) closing costs.  What would be the best strategy?

moustache1979

  • 5 O'Clock Shadow
  • *
  • Posts: 48
Re: Mortgage Refi / Setting up for Investing
« Reply #21 on: March 26, 2015, 02:01:58 AM »
Can't you strike a better balance between term/paydown amount?

In my case, I am saving $3k in interest in year 1for an investment of $30k, which is the basic reason why I think it makes sense vs. Investing

In your case, it requires a much larger investment for a bit more, but similar savings.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #22 on: March 26, 2015, 05:52:46 AM »
I have a similar dilemma.  I want to know if it would be better to re-fi or invest?  My current mortgage is 4.825 and I owe about 210K.  I was originally planning to go to an 8 year refi which would drop my interest rate to 3.125%.  It would also raise my monthly payment by $100 and I would need to pay down $100K with approximately 5k of closing costs.  The advantage is that I would be paying far more principal per month and my mortgage would be only about $110K.  I could invest with Vanguard and let it grow, continue to pay the current monthly bill then pay down ASAP. 

I really hate the 5K (4800) closing costs.  What would be the best strategy?

105k compounded over 8 years with 100 more a month is 193k.  but you're overlooking the same thing the OP is you can probably get a 30 year in the mid 3's and i bet you can even get a 15 year for that same 3.125% ... basically yes if you take your proposal in a snap shot it makes sense but you're not looking at all options.  the best option is a Mid 3 rate on a 30 year refinance every time.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #23 on: March 26, 2015, 05:54:57 AM »
Can't you strike a better balance between term/paydown amount?

In my case, I am saving $3k in interest in year 1for an investment of $30k, which is the basic reason why I think it makes sense vs. Investing

In your case, it requires a much larger investment for a bit more, but similar savings.

as shown above yes it makes sense if you dont evalaute all of your options you could pay more interest and get a similar loan for 30 years.  the only reason both these cases come out ahead is b/c your original mortgage rate is much higher than the current rates for the same loan. You should consider 30 year REFI's as well IMO not just these super fast burn a lot of capital now approaches ... you will come out ahead in the long run.

SherrieRose

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Mortgage Refi / Setting up for Investing
« Reply #24 on: March 26, 2015, 08:37:25 PM »
Thank you for the advice; I am really leaning toward investing.  I just don't know how to approach analyzing the numbers.  I am only planning to stay in the mortgage for 3 more years at most.  I thank you for your response and help. 

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #25 on: March 27, 2015, 05:14:31 AM »
Thank you for the advice; I am really leaning toward investing.  I just don't know how to approach analyzing the numbers.  I am only planning to stay in the mortgage for 3 more years at most.  I thank you for your response and help.

There is no reason to spend REFI fees to stay in a mortgage for 3 years.

DK

  • Stubble
  • **
  • Posts: 223
Re: Mortgage Refi / Setting up for Investing
« Reply #26 on: March 27, 2015, 05:56:54 AM »
If you are only planning on 3 years, this might be worth looking into -
https://www.penfed.org/55-Adjustable-Rate-Mortgage/

boarder42

  • Walrus Stache
  • *******
  • Posts: 7845
Re: Mortgage Refi / Setting up for Investing
« Reply #27 on: March 27, 2015, 06:10:41 AM »
If you are only planning on 3 years, this might be worth looking into -
https://www.penfed.org/55-Adjustable-Rate-Mortgage/

that is a baller deal for short term REFI