pay off mortgage earlier? where to put extra $ for a lump sum principle paymt?

[Drake]

I'm just entering year 3 of a 30 year mortgage at 4.875% interest. Got a good deal on the right house when rates were starting to go down but not bottomed, so the interest rate is only so-so. I paid over 20% down so there is no PMI.

I am 30 and would like to have this thing paid off sometime in my 40's. I looked into a refi to a 15 year but with interest rates creeping back up from 2.5% to near 3% along with the closing costs (whether or not it's rolled into the loan) I don't think a refi makes a lot of sense.

I've played with the ammortization calculator on my lender's web site. If I were to pay off the loan like a 15 year, and accounting for estimated closing costs of a refi, I'd be on the hook for an extra 3 - 3.5 years worth of making monthly payments - i.e. the loan is paid off about 10 to 10.5 years earlier which plus what the savings of the closing costs for the refi  makes the refinance route not as sensible.

Furthermore it looks like there wouldn't be a huge difference in whether I made the extra payment to the principle each month or one lump sum a year. Where could I stick that extra money toward a principle payment each month where it can accrue 5% or some decent interest/dividends?

I have about 25k in my VANGUARD in SP500 and  VTSAX index funds but I'd like to keep the mortgage money separate from my 'stache since I'm worried I'll be irrationally attached to seeing that money there and growing when the time comes to make a lump sum principle payment. I would just like to split my direct deposit from my paycheck and have the extra mortgage funds automatically sent to some account I won't bother looking at until I need to make a lump sum principle payment.

Or am I going about this wrong and should I be socking more money toward my 401K? Right now I'm contributing 7% with an employer match of 5% to a roth 401K and my salary is 75K and will hit the 80's in the next few years and plan on continuing to increase my contributions as my salary increases. (side note I just got a 10K raise and plan on maintaining my lifestyle and not using that extra money, increasing 401k contribs and contributing to my vanguard each month)

[FlorenceMcGillicutty]

You lost me when you said that your mortgage is at 4.875 and that you want to have your mortgage paid off in 15 years but don't want to refinance for a 3% rate. I don't get that. Mathematically, refinancing would make perfect sense for you. Why are you discounting it?

[Drake]

You lost me when you said that your mortgage is at 4.875 and that you want to have your mortgage paid off in 15 years but don't want to refinance for a 3% rate. I don't get that. Mathematically, refinancing would make perfect sense for you. Why are you discounting it?

Factoring closing costs estimated to be about $5-7. I could pay it off like a 15 year and be done 10-10.5 years earlier. The potential lost compounding interest if I have to take money out of my Vanguard stache to pay closing costs up front if I go that route instead of rolling it into the new loan. Then if I am getting some kind of interest on money being saved up for a lump sum principle payment. I'm still on the hook for about 3 to 4 years extra versus simply refinancing to a 15 year.

I guess I also should have mentioned I'm not entirely sure if I can swing what a 15 year monthly payment would be, at least right now, so I can at least try it out at no pressure. Plus it would probably be a few weeks to a month for me to get rolling if I were to try to refinance and interest rates seem to be going up at the moment.

[Another Reader]

You should be able to get a no cost or reduced cost 30 year mortgage at a much lower rate today, probably no points at 3.5 percent, no cost a little higher.  It's a no brainer to do a no-cost mortgage that lowers your interest rate one percent or more.  Then pay it down faster if you want to.  In your shoes I would shop around and get it locked before rates rise again.

[FlorenceMcGillicutty]

You should be able to get a no cost or reduced cost 30 year mortgage at a much lower rate today, probably no points at 3.5 percent, no cost a little higher.  It's a no brainer to do a no-cost mortgage that lowers your interest rate one percent or more.  Then pay it down faster if you want to.  In your shoes I would shop around and get it locked before rates rise again.

+1

I just refinanced and brought no money to closing. Check out bankrate.com and look for the best deal you can get. You can do better on your mortgage payments, even at 30 yrs, and get to your goals faster.

[Drake]

You should be able to get a no cost or reduced cost 30 year mortgage at a much lower rate today, probably no points at 3.5 percent, no cost a little higher.  It's a no brainer to do a no-cost mortgage that lowers your interest rate one percent or more.  Then pay it down faster if you want to.  In your shoes I would shop around and get it locked before rates rise again.

+1

I just refinanced and brought no money to closing. Check out bankrate.com and look for the best deal you can get. You can do better on your mortgage payments, even at 30 yrs, and get to your goals faster.

no money to closing as in closing costs rolled into the new loan?

[Another Reader]

No.  You pay a slightly higher interest rate and the lender pays the closing costs.  They get a "kickback" from whoever is supplying the money.  Each 1/8 point has a premium attached.  Check the websites for your local banks and credit unions and call a few brokers from one of the aggregator sites.  There are a couple of threads with lender recommendations on this forum.

Here's an example from a local credit union here.

http://providentcu.org/index.asp?i=mortgageRates

You can pay more for a lower rate or pay less and accept a higher rate.  It looks like rates jumped since last I checked, but a no cost 30 loan under 4 percent may still be offered somewhere.

[SnackDog]

Very, very few people in the US live in the same home long enough to pay for it.  People get married, have kids, send them to college, divorce, die, change cities for job, etc.   If you are convinced this is THE HOUSE, then plan accordingly. Otherwise, making changes is going to cost you on fees if you sell in a few years.  Also keep in mind you can probably safely get more than your current mortgage rate in the stock market as a return so plowing your cash into a mortgage where it won't appreciate seems dumb.