Author Topic: Mortgage refi - what would you do?  (Read 3148 times)

druth

  • Bristles
  • ***
  • Posts: 333
  • Location: 'sota
Mortgage refi - what would you do?
« on: May 17, 2016, 02:24:15 PM »
So there are three options available to me.  I'm having a lot of trouble wrapping my brain around the opportunity costs associated with each option I'll just put them out as plainly as possible:

Option 1 (existing mortgage):

Rate: 4.00%
PMI: $100
PITI Payment: $1147
Fees: $0 (keeping the same mortgage)
Term: 30 years (29 remaining)
Pros: lower payment with no additional money tied up
Cons: Stuck with PMI.  PMI is the worst. 

Option 2:

Rate 3.75
PMI: $0
PITI Payment: 1428
Fees: $2783 rolled into new mortgage
Term: 15 years
Pros:  No PMI, lower interest
Cons: Higher payment, fees

Option 3

Rate 2.75
PMI: $0
PITI Payment: 1160
Fees: $818 upfront
Term: 15 years
With option 3 I would have to liquidate 12000$ in Roth IRAs and 9k in 401k loans at 3.5% in order to get down to 80% LTV
Pros: Lowest interest, sameish payment, no PMI, lower fees
Cons: additional money to get below 80% would take money out of retirement accounts.

I can easily afford any of these payments, but I'm barely able to fill all my tax advantaged accounts right now, so I might have to take that extra 300$ a month out of payments to HSA/401k.
Is the opportunity cost of the extra 300$ a month payment worth it?  Seems like it is if I can get rid of PMI.
Then the question is, is it worth it to take money out of retirement accounts in order to get below 80% to get that much better rate?

I'm leaning towards option 2 but if somebody could help me sort out all of the different variables I would appreciate it.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Mortgage refi - what would you do?
« Reply #1 on: May 17, 2016, 05:52:58 PM »
You don't have any other way of getting the $12k? Like a larger 401k loan? Or a loan from another source?

How much do you save each month?

druth

  • Bristles
  • ***
  • Posts: 333
  • Location: 'sota
Re: Mortgage refi - what would you do?
« Reply #2 on: May 17, 2016, 06:30:39 PM »
9k is my max 401k loan, I save about 2900$ a month.  Would it be worth it to wait 5 months and just not put money into any of my other accounts (except 401k match)?  No telling what rates will be 5 months from now.  I don't know much about other loan sources.  Aren't personal loan rates really high?
« Last Edit: May 17, 2016, 06:34:53 PM by druth »

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Mortgage refi - what would you do?
« Reply #3 on: May 17, 2016, 07:05:53 PM »
If you got a personal loan, you'd pay it off really quickly, so you'd only rack up a few hundred bucks in interest--which is much less than the extra loan fees for #2 vs #3. My credit union offers personal loans for under 10%.

Since it sounds like you're a long way from FIRE, I would pay a few extra hundred bucks to keep the money in your Roth. So either getting a personal loan or just waiting a few months. I think at worst the interest rates will go up 0.25% at most in the next 5 months. Taking a 401k loan is OK as long as you are pretty sure you'll stay in that job for at least a year (the time it would take you pay it off along with the personal loan).

If you do a personal loan, make sure it doesn't push you over the debt to income threshold such that you can't get the mortgage.

Tjat

  • Pencil Stache
  • ****
  • Posts: 562
Re: Mortgage refi - what would you do?
« Reply #4 on: May 17, 2016, 07:19:15 PM »
I'd keep looking for refinance options. It doesn't sound like your savings are high enough to justify putting so much of your assets in your house (option 3), and option 2 gives you a miniscule interest rate savings. I would try to refinance out of PMI, but 4% isn't a terrible rate. I just refi'd to 3.5% but have 30% equity so that seems comparable.

GrOW

  • Bristles
  • ***
  • Posts: 273
    • Gringing Out Wealth
Re: Mortgage refi - what would you do?
« Reply #5 on: May 17, 2016, 07:21:31 PM »
I would kill of option 2. I just don't see it winning out. 28 months, more if you like discount rates, to balance out the fees.

How about a 0% credit card? Rotate to new one if needed prior to payoff. Should be easy. Will have to be disclosed to lender.




obstinate

  • Pencil Stache
  • ****
  • Posts: 882
Re: Mortgage refi - what would you do?
« Reply #6 on: May 18, 2016, 12:01:07 AM »
It can be helpful to break out the ITI into a separate column from the P. How is that changing w/ the refi options. That's the only part that costs you anything material. P is just transforming one asset into another.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Mortgage refi - what would you do?
« Reply #7 on: May 18, 2016, 09:46:57 AM »
It can be helpful to break out the ITI into a separate column from the P. How is that changing w/ the refi options. That's the only part that costs you anything material. P is just transforming one asset into another.

Really just I is changing. TI should be the same too. P will change from option 1 to 2 or 3.

druth

  • Bristles
  • ***
  • Posts: 333
  • Location: 'sota
Re: Mortgage refi - what would you do?
« Reply #8 on: May 18, 2016, 09:52:58 AM »
I think what I will do based on comments is pay down aggressively to get to 20% and then re-evaluate.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: Mortgage refi - what would you do?
« Reply #9 on: May 18, 2016, 10:19:11 AM »
Seems reasonable.

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1471
Re: Mortgage refi - what would you do?
« Reply #10 on: May 18, 2016, 12:03:04 PM »
I think what I will do based on comments is pay down aggressively to get to 20% and then re-evaluate.

Yea, if it is only going to take you 5-6 months it won't be a big deal. The FED is already back-tracking on raising rates and if they do, it will be fractions of a percent.

obstinate

  • Pencil Stache
  • ****
  • Posts: 882
Re: Mortgage refi - what would you do?
« Reply #11 on: May 18, 2016, 08:50:35 PM »
Really just I is changing. TI should be the same too. P will change from option 1 to 2 or 3.
Right. What I'm trying to get at is that changing I by a small amount isn't really moving the ball very much. It might take a long time to pay back depending on what the change is.

gmp029

  • 5 O'Clock Shadow
  • *
  • Posts: 27
Re: Mortgage refi - what would you do?
« Reply #12 on: May 19, 2016, 01:07:26 PM »
What's the (anticipated) appraised value of the house vs existing mtg balance? If you can get a good appraisal you might be able to get a better LTV, making option 3 work. 

Sent from my Nexus 6 using Tapatalk


frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1643
Re: Mortgage refi - what would you do?
« Reply #13 on: May 19, 2016, 01:19:46 PM »
I think what I will do based on comments is pay down aggressively to get to 20% and then re-evaluate.

There you go...

None of the options are good.  I advocate NEVER borrowing or using retirement $$$.