Author Topic: Worth refi to reset a 30 yr or move to 15? Lender said resetting is worthless  (Read 1088 times)

Easye418

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All,

Currently, I am 4 years in a 30 year @ 3.75%.

I could move to a 30 year @ 3.25% OR a 15 year @ 2.75%.  closing costs about $3K (not including $2500 credit from Better).

Lending said resetting means I would just be losing the $69K I already paid it.  (don't really believe that because it goes to principal and interest is gone regardless)

Does it make any sense to reset my 30 year or move to 15? 

Doesn't seem very mustachian.  The 15 year is only a .5% lower than the 30 year, but I would save a TON of interest and own my house 15 years sooner (shave 11 years of payments off of my current 30), but payment would increase $400.

Thanks!

Lmoot

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Do you plan keeping the house 15 or 30 years? It seems like such a small savings rate. I personally wouldn't want to go through the expense and hassle, and possible hit to credit, for something less than a 1-2% savings. It also depends how much your balance is. My balance is only $38k, hence I wouldn't go through the trouble, but 1% of that is way different than 1% of say $250K.

I also personally prefer to have flexibility. And 30 years give you that. I don't know if I'd want to trade the flexibility and cash flow room, for such a small reduction in rate. You could always wait and see. Perhaps the rates will go lower.

Easye418

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Do you plan keeping the house 15 or 30 years? It seems like such a small savings rate. I personally wouldn't want to go through the expense and hassle, and possible hit to credit, for something less than a 1-2% savings. It also depends how much your balance is. My balance is only $38k, hence I wouldn't go through the trouble, but 1% of that is way different than 1% of say $250K.

I also personally prefer to have flexibility. And 30 years give you that. I don't know if I'd want to trade the flexibility and cash flow room, for such a small reduction in rate. You could always wait and see. Perhaps the rates will go lower.

No, I estimated another 8 years in the house.  I do value the flexibility.

The 30 year @ 3.25% would eliminate my PMI and payment would decrease $280 dollars.  I suppose I could always keep paying at my current mortgage rate to effectively reduce my term.  I was considering the "wait and see" method as well.

Lmoot

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Do you plan keeping the house 15 or 30 years? It seems like such a small savings rate. I personally wouldn't want to go through the expense and hassle, and possible hit to credit, for something less than a 1-2% savings. It also depends how much your balance is. My balance is only $38k, hence I wouldn't go through the trouble, but 1% of that is way different than 1% of say $250K.

I also personally prefer to have flexibility. And 30 years give you that. I don't know if I'd want to trade the flexibility and cash flow room, for such a small reduction in rate. You could always wait and see. Perhaps the rates will go lower.

No, I estimated another 8 years in the house.  I do value the flexibility.

The 30 year @ 3.25% would eliminate my PMI and payment would decrease $280 dollars.  I suppose I could always keep paying at my current mortgage rate to effectively reduce my term.  I was considering the "wait and see" method as well.

*just caught the bit about eliminating PMI. That may make a difference worth it.

Well being that itís only around eight more years, without numbers I donít know what tons of savings means. But usually if you calculate interest savings, it calculates it for the full term be that 15 or 30 years. So youíre not going to recoup as much of the savings shown on a calculator if you sell the house before the term is up. You will only get eight years of interest savings.
« Last Edit: April 14, 2020, 12:15:53 PM by Lmoot »

Easye418

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Do you plan keeping the house 15 or 30 years? It seems like such a small savings rate. I personally wouldn't want to go through the expense and hassle, and possible hit to credit, for something less than a 1-2% savings. It also depends how much your balance is. My balance is only $38k, hence I wouldn't go through the trouble, but 1% of that is way different than 1% of say $250K.

I also personally prefer to have flexibility. And 30 years give you that. I don't know if I'd want to trade the flexibility and cash flow room, for such a small reduction in rate. You could always wait and see. Perhaps the rates will go lower.

No, I estimated another 8 years in the house.  I do value the flexibility.

The 30 year @ 3.25% would eliminate my PMI and payment would decrease $280 dollars.  I suppose I could always keep paying at my current mortgage rate to effectively reduce my term.  I was considering the "wait and see" method as well.

Well being that itís only around eight more years, without numbers I donít know what tons of savings means. But usually if you calculate interest savings, it calculates it for the full term be that 15 or 30 years. So youíre not going to recoup as much of the savings shown on a calculator if you sell the house before the term is up. You will only get eight years of interest savings.

That's why I was considering stretching and going to the 15 year.  Build up equity much faster in the house.  But I am not sure I need to do anything at all.

Lmoot

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^just edited my reply. Somehow I skimmed and missed the PMI info. Doing 15 years would certainly help you maximize on your rate savings if youíre only going to be there for eight more years. Assumingthat you have a healthy emergency fund or access to liquid accounts in case your income goes down and youíre on the hook for a larger mortgage payment.

tweezers

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Do you plan keeping the house 15 or 30 years? It seems like such a small savings rate. I personally wouldn't want to go through the expense and hassle, and possible hit to credit, for something less than a 1-2% savings. It also depends how much your balance is. My balance is only $38k, hence I wouldn't go through the trouble, but 1% of that is way different than 1% of say $250K.

I also personally prefer to have flexibility. And 30 years give you that. I don't know if I'd want to trade the flexibility and cash flow room, for such a small reduction in rate. You could always wait and see. Perhaps the rates will go lower.

No, I estimated another 8 years in the house.  I do value the flexibility.

The 30 year @ 3.25% would eliminate my PMI and payment would decrease $280 dollars.  I suppose I could always keep paying at my current mortgage rate to effectively reduce my term.  I was considering the "wait and see" method as well.

With a refi to 3.25% 30-year, your monthly payment would decrease by $280/month?  Plus you'd lose whatever monthly PMI payment?  If so, that's a savings of ~$3400/year (not including whatever you save with PMI).  If that's the case, refinancing seems like a no-brainer to me.   

SuperSecretName

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Lending said resetting means I would just be losing the $69K I already paid it.  (don't really believe that because it goes to principal and interest is gone regardless)
I am very confused by this.  Are they talking about the payments you've already made?  Because that would be patently false.  If they are referring to the term, and that you'd be lengthening your mortgage by 4 years, so your payments would be "lost," I mean, I guess that's one way to look at it.  Completely incorrect, and I don't think I would have another conversation with the person who said that.  Ever again.

With the better.com credit, the refi to the lower 30yr is a no-brainer.  You get rid of PMI, lower interest rate, and save money every month.  Wins all around.  Adding another 4 years is a non-issue.  Most mortgages never get paid off anyway.

Personally, I'd stick with the 30 over the 15.  I'm in the never-pay-off-mortgage camp though.  If you invest the difference, you will come out way ahead and have the added flexibility.  You describe the 15 as stretching.  But to what end?  To payoff a mortgage faster, under no pressure but what you put on yourself?  Nah.  Current events should drive home the need for flexibility and liquidity.

acepedro45

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Quote
With a refi to 3.25% 30-year, your monthly payment would decrease by $280/month?  Plus you'd lose whatever monthly PMI payment?  If so, that's a savings of ~$3400/year (not including whatever you save with PMI).  If that's the case, refinancing seems like a no-brainer to me.   

I don't that's quite a fair comparison, because it ignores that the payments continue on for an additional 4 years beyond the current 26 years remaining. Plus, we need to keep in mind that the OP might move sooner or later, and if it's sooner, paying a fixed cost up front for lower future payments looks like less and less of a good deal.

The back-of-the-envelope way I used to decide to refinance my own mortgage was to take my current balance and multiply by the difference in interest rates since the terms were similar - then I checked that savings against the fixed refi costs. So if you owed 300,000 and were considering a refi that would slash your rate by .5%, you'd get $1500 interest savings the first year. (This ignores the slight effect of the monthly paydowns). In addition, you'd also get 12x your monthly PMI saved in your case. Now you've got a ballpark estimate of how much savings you'll have in year one. How does that compare to the fixed, one-time costs of the refi (3k in this case)?

Somewhere along the line, PMI would go away with your current mortgage and you should get clarity on when that would be before you make any decisions.

My guess is the 30 year refi looks pretty decent compared to your present situation (especially when getting rid of PMI). The choice between 15 and 30 year term is a whole 'nuther question and can of worms.

Quote
Lending said resetting means I would just be losing the $69K I already paid it.  (don't really believe that because it goes to principal and interest is gone regardless)

Your lender is an idiot and your suspicion is merited. I guess the person is trying to say that most of what you paid so far went to interest and not principal so far (but that's just how amortization works.) I would probably not work with someone like that on such an important transaction.

Easye418

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Quote
With a refi to 3.25% 30-year, your monthly payment would decrease by $280/month?  Plus you'd lose whatever monthly PMI payment?  If so, that's a savings of ~$3400/year (not including whatever you save with PMI).  If that's the case, refinancing seems like a no-brainer to me.   

I don't that's quite a fair comparison, because it ignores that the payments continue on for an additional 4 years beyond the current 26 years remaining. Plus, we need to keep in mind that the OP might move sooner or later, and if it's sooner, paying a fixed cost up front for lower future payments looks like less and less of a good deal.

The back-of-the-envelope way I used to decide to refinance my own mortgage was to take my current balance and multiply by the difference in interest rates since the terms were similar - then I checked that savings against the fixed refi costs. So if you owed 300,000 and were considering a refi that would slash your rate by .5%, you'd get $1500 interest savings the first year. (This ignores the slight effect of the monthly paydowns). In addition, you'd also get 12x your monthly PMI saved in your case. Now you've got a ballpark estimate of how much savings you'll have in year one. How does that compare to the fixed, one-time costs of the refi (3k in this case)?

Somewhere along the line, PMI would go away with your current mortgage and you should get clarity on when that would be before you make any decisions.

My guess is the 30 year refi looks pretty decent compared to your present situation (especially when getting rid of PMI). The choice between 15 and 30 year term is a whole 'nuther question and can of worms.

Quote
Lending said resetting means I would just be losing the $69K I already paid it.  (don't really believe that because it goes to principal and interest is gone regardless)

Your lender is an idiot and your suspicion is merited. I guess the person is trying to say that most of what you paid so far went to interest and not principal so far (but that's just how amortization works.) I would probably not work with someone like that on such an important transaction.

Lending said resetting means I would just be losing the $69K I already paid it.  (don't really believe that because it goes to principal and interest is gone regardless)
I am very confused by this.  Are they talking about the payments you've already made?  Because that would be patently false.  If they are referring to the term, and that you'd be lengthening your mortgage by 4 years, so your payments would be "lost," I mean, I guess that's one way to look at it.  Completely incorrect, and I don't think I would have another conversation with the person who said that.  Ever again.

With the better.com credit, the refi to the lower 30yr is a no-brainer.  You get rid of PMI, lower interest rate, and save money every month.  Wins all around.  Adding another 4 years is a non-issue.  Most mortgages never get paid off anyway.

Personally, I'd stick with the 30 over the 15.  I'm in the never-pay-off-mortgage camp though.  If you invest the difference, you will come out way ahead and have the added flexibility.  You describe the 15 as stretching.  But to what end?  To payoff a mortgage faster, under no pressure but what you put on yourself?  Nah.  Current events should drive home the need for flexibility and liquidity.

Thank you for the responses. 

tweezers

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It's worth mentioning that there are a ton of refinance calculators online that will allow you to put in your specific details and calculate your savings.  I suspect that you'll see that a 30-year refi at 0.5% lower is well worth the effort.

DirtDiva

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To echo tweezers, check out a mortgage calculator.  The Mortgage Professor has some good ones (though the deductible mortgage interest calculation is mostly obsolete).

https://www.mtgprofessor.com/CalculatorArticles/Refinance-Calculator.html

Alternatepriorities

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I'd base the calculations on the time you plan to be there for rather than the life of the mortgage.

If you can save $280 a month = $3360/year in payments for a one time refinance fee off ~$3000 it seems like a pretty obvious math. The only way you loose is if you decided to sell the house in less than a year.

Easye418

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I'd base the calculations on the time you plan to be there for rather than the life of the mortgage.

If you can save $280 a month = $3360/year in payments for a one time refinance fee off ~$3000 it seems like a pretty obvious math. The only way you loose is if you decided to sell the house in less than a year.

Just looking at simple math:

Current

3.75%, $1450 P&I: $522K

Remaining:
3.75%, 312 months, $1450: $452K

New:
3.375%, $1299 P&I, 360 months: $467K


So all this is doing is getting me more cash flow?  Seems like I will end up paying an extra $15K and closing for 4 more years to pay on the house.

Doesn't seem worth it?


Edit:

I see what you are saying:  so if I am there for 8 more years

current:  $139K

new: $124K

so but factor in closing of maybe $3500, I only truly am saving ~$10K.  Seems minor.
« Last Edit: April 14, 2020, 05:41:06 PM by Easye418 »

Alternatepriorities

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If turning $3500 into $15K over 8 years is minor I'm clearly in the wrong investments.

Though it looks like only $151 a month in savings from the most recent numbers

Easye418

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If turning $3500 into $15K over 8 years is minor I'm clearly in the wrong investments.

Though it looks like only $151 a month in savings from the most recent numbers

Valid point :)

Easye418

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hm, my lending threw out the idea of doing a cash out refi to scoop up my home improvement loan.

Current: 3.75% 30 year $1450 P&I, and 5.99% 20 year $221 P&I. $1671 total.

New: 3.375% 30 year, $1406, $3445 closing (inc $1000 lender credit)


or I could always do the Northpointe 2.75% 15 year for just the primary.

Better.com is doing the free appraisal anyways so that will be great. I am just waiting to see if they can match the lender above and wipe out all my cost.

JLee

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I'd base the calculations on the time you plan to be there for rather than the life of the mortgage.

If you can save $280 a month = $3360/year in payments for a one time refinance fee off ~$3000 it seems like a pretty obvious math. The only way you loose is if you decided to sell the house in less than a year.

Just looking at simple math:

Current

3.75%, $1450 P&I: $522K

Remaining:
3.75%, 312 months, $1450: $452K

New:
3.375%, $1299 P&I, 360 months: $467K


So all this is doing is getting me more cash flow?  Seems like I will end up paying an extra $15K and closing for 4 more years to pay on the house.

Doesn't seem worth it?


Edit:

I see what you are saying:  so if I am there for 8 more years

current:  $139K

new: $124K

so but factor in closing of maybe $3500, I only truly am saving ~$10K.  Seems minor.

Didn't you say you had a $2500 lender credit?

How much would you save if you kept the amount you're paying the same as today?