Author Topic: Should I refinance to a 15 year mortgage?  (Read 3648 times)

jamesbond007

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Should I refinance to a 15 year mortgage?
« on: July 26, 2017, 03:47:41 PM »
My current rate is 3.625% and I owe about $340K in principal after I refinance 12 months ago from 4%. Based on market data, my house is worth around $480K. My current monthly payment is $1600 P+I.


I am seeing zero cost refi options @ 3.125% for a 15 year fixed. Shall I bite the bullet? It would increase my monthly payment by about $600 but I'll be saving a ton of money on interest over 15 years. On the other hand, I like the option of keeping my monthly payments low in case some unforeseen situation arises.


Context: Maximizing my 401k, maximizing employer match, Backdoor Roth IRA, no HSA (Not a fan). Enough savings to live of more than comfortably(incl. paying mortgage) for a year in case of a job loss.



« Last Edit: July 26, 2017, 06:47:30 PM by jamesbond007 »

jamesbond007

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Re: Should I refinance to a 15 year mortgage?
« Reply #1 on: July 26, 2017, 06:48:06 PM »
There's a lot of details you could add such as income and expenses that would help get better advice.  If you're maxing your tax advantaged investment accounts already and the extra money would just come from what would be after tax investments, I think it's a good plan.

The answer comes down to: if you can swing it - go for it.  $140 per month in interest saved per month before taxes and still over $100 after tax savings.


Sorry. I added more details to my original post. I posted that in a hurry this afternoon. My apologies.

Telecaster

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Re: Should I refinance to a 15 year mortgage?
« Reply #2 on: July 26, 2017, 06:50:40 PM »
Doesn't look attractive to me.  $600/month bird in the hand is pretty sweet . 

Laura33

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Re: Should I refinance to a 15 year mortgage?
« Reply #3 on: July 27, 2017, 07:02:14 AM »
For me, not sure .5% would be sufficient to offset the flexibility, and you are already at a rate that is very likely significantly lower than what the market will return.  But your timing to RE could change that -- we refi'd to a 15-yr largely because the payoff date coincided with our planned RE date, which lowers the nut we need from that point on.

I'd also look closely at the "no cost," as usually that means they just roll the various costs into the new mortgage.  Maybe there's no origination fee, but there are always filing costs, tax costs, title insurance, and other costs associated with a refi.  Get a complete quote for all of those costs, and then compare the overall savings vs. the option of just prepaying your current mortgage on the same schedule.

Secretly Saving

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Re: Should I refinance to a 15 year mortgage?
« Reply #4 on: July 27, 2017, 07:10:54 AM »
We actually just did this and knocked 2% off our mortgage interest rate and went from a 30 year to a 15 year.  We decided to refinance because we had already checked all the other financially responsible boxes.

Maxing out:
- two employer retirement accounts (one allows for Mega Back Door Roth, Yay) and receiving employer match
- paying into govt retirement system
- two tIRAs (back door Roth)
- HSA

Adding to:
- taxable account to each month
- 529s up to state credit

Have no debt
- pay off cc every month

So we got to the "what do we do next?"  The logical thing was to look at the mortgage.  Now that's a lower interest rate and will disappear pretty fast.  I've you've got everything else covered, I'd say go for it!

katsiki

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Re: Should I refinance to a 15 year mortgage?
« Reply #5 on: July 27, 2017, 07:11:08 AM »
I would do it under your scenario.

jamesbond007

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Re: Should I refinance to a 15 year mortgage?
« Reply #6 on: July 27, 2017, 10:17:06 AM »
Thank you. I will look into refinancing. The other thing I am thinking about is paying the $600 per month extra towards principal and keeping my 30-year. That way I can flexible if need to lower my payments in the future for whatever reason. I did the math and both approaches end my mortgage in approximately 15 years.

Also, cashcall mortgage does a truly zero cost mortgage refi. I did it with them last year and I did not pay any hidden fees whatsoever. just FYI.

Scortius

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Re: Should I refinance to a 15 year mortgage?
« Reply #7 on: July 27, 2017, 11:31:20 AM »
Just to provide a contrary opinion, a 0.5% gap between a 30 and 15-year isn't really a gain as the gap between the two has traditionally been around that level or even higher.  If you're comfortable with the "don't pay off your mortgage" approach, you would probably be better off keeping the 30 year.  One thing to remember is that although the time frame will be longer, inflation will end up reducing the true costs of the extra years, while the benefits of investing an extra $600 a month starting now should easily outpace your mortgage rate, not to mention inflation.

If it were me, I would commit to spending that extra $600 per month, but I would do so as an auto-deposit into a taxable brokerage account instead of refinancing the mortgage.

partgypsy

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Re: Should I refinance to a 15 year mortgage?
« Reply #8 on: July 27, 2017, 01:23:27 PM »
I've heard somewhere it is worth to refinance if the rate go down 1% or more (of course the pluses, minuses of refinance also depends on how long plan to live in house, cash liquidity, etc).

For me that difference is not enough to go through hassle. If I was in your situation I would automatically pay down principal on own, without being tied to a high fixed monthly payment.

I refinanced 6? years ago to a 15 year from a 30 year. Overall I'm happy I did. My miscalculation is that I did not predict I would be divorcing. Our property taxes also doubled in that time. Our old payment was no sweat. I'm still able to afford the new mortgage+taxes on my own, but I don't know what the situation will be once everything is separated. At the worse even if I decide I need to sell, there will be more house equity than if I hadn't refinanced.   

StarBright

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Re: Should I refinance to a 15 year mortgage?
« Reply #9 on: July 27, 2017, 01:30:09 PM »
Thank you. I will look into refinancing. The other thing I am thinking about is paying the $600 per month extra towards principal and keeping my 30-year. That way I can flexible if need to lower my payments in the future for whatever reason. I did the math and both approaches end my mortgage in approximately 15 years.


This is what we do! I love the flexibility because you never know what the future will bring.

We have recently discussed that if the market starts to dip significantly then we will put the extra mortgage payments into buying investments at a discount for a bit. I'm very happy with this middle of the road approach.
« Last Edit: July 27, 2017, 01:32:15 PM by StarBright »

Lady SA

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Re: Should I refinance to a 15 year mortgage?
« Reply #10 on: July 27, 2017, 01:39:43 PM »
Eh. I'd be contrary here and say that .5% isn't enough to trade the flexibility a lower monthly payment provides. I'd just take the $600 and prepay the mortgage you already have if you want.

AlanStache

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Re: Should I refinance to a 15 year mortgage?
« Reply #11 on: July 27, 2017, 01:41:32 PM »
Based on the last 100+ years of market data it is a near certainty that you will do better investing the 600$ than putting it towards the low interest rate debt.

Also the higher payment may make it harder to rent the property for a month to month profit, I am in this boat.  A lower payment gives you flexibility; you dont know what will happen in the next 15-30 years.

Refi to a 30 year?  maybe.

jamesbond007

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Re: Should I refinance to a 15 year mortgage?
« Reply #12 on: July 27, 2017, 04:32:57 PM »
Great points. As usual, this forum did not disappoint me. I guess I'll keep the 30 year and invest the extra 600$ in a taxable investment account. When it comes to FI and I still have mortgage principal left to pay, I will use this fund to pay it off.

AlanStache

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Re: Should I refinance to a 15 year mortgage?
« Reply #13 on: July 27, 2017, 07:13:27 PM »
Great points. As usual, this forum did not disappoint me. I guess I'll keep the 30 year and invest the extra 600$ in a taxable investment account. When it comes to FI and I still have mortgage principal left to pay, I will use this fund to pay it off.

Also invested assets are (very) easily accessed if needed; home equity less so.

I too really like seeing the debt decrease and hitting new lows but math.  My basic outline of a plain is to pay the minimum then pay off the balance when I 'drop the mic'; this too is sub-optimal but I just cant see myself being calm and peaceful in ER without the home paid off.  But we will see.

Good luck!

nottoolatetostart

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Re: Should I refinance to a 15 year mortgage?
« Reply #14 on: July 28, 2017, 07:51:55 PM »
Based on the last 100+ years of market data it is a near certainty that you will do better investing the 600$ than putting it towards the low interest rate debt.

Also the higher payment may make it harder to rent the property for a month to month profit, I am in this boat.  A lower payment gives you flexibility; you dont know what will happen in the next 15-30 years.

Refi to a 30 year?  maybe.

Agree. You don't know what future will bring and the higher payment is a choker. We refi'd from a 15 yr to 30 yr, even though we could scrap together money to pay it off now. Best decision ever - lower payment almost overnight made us hit bare bones FI (with new payment).

Flexibility is key.