Author Topic: DONT Payoff your Mortgage Club  (Read 391640 times)

habaneroNorway

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Re: DONT Payoff your Mortgage Club
« Reply #2250 on: June 03, 2020, 01:15:38 PM »
Got the paperwork from the bank today and signed it and returned it so guess it's all sorted out then. Was quite shocked they actually did this by paper but guess there is some legal stuff requiring them to do it by snail mail and not on-line secure signing. Well, whatever.

This will reduce my monthly mortage bill from around 1300 dollars / month (some of it tax deductible) to a whopping 285 dollars (same amount tax deductible as before). So after tax I pay all of 220 dollars on my mortgage while inflation chews away at the principal. Sweet.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2251 on: June 03, 2020, 02:30:57 PM »
@habaneroNorway you are the LeBron James of the DNPYM club!

habaneroNorway

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Re: DONT Payoff your Mortgage Club
« Reply #2252 on: June 03, 2020, 03:05:01 PM »
The mortgage system here is very different from the US - adjustable-rate mortgages are the standard and you have to actively opt for a fixed rate and very few people do and if you do its generally fixed for a maximum of 10 years (mostly due to the interest rate market, there isn't much trading beyond 10 years). The rules are that if a bank announces a change in the interest rate it's effective 6 weeks from giving notice. One of the plus points of floating rate mortgages is you can prepay or increase pretty much any way you like with no fees as there the rate is never out of sync with the prevailing market. The downside is that it fluctuates and you dont have any protection if rates start increasing. They haven't done so in any meaningful way for ages so staying floating has worked out fine. Normally you need a pretty low loan-to-value-ratio to apply for an interest-only mortgage, but this regulation is temporarily suspended to help people who are out of work due to Covid-19-regulations. I have applied under the regular rules as my mortgage is not that high anyway so I would have been granted it in any case.

I could increase my mortgage but to quote the great philosopher Warren Buffet "why risk something I don't want for something I don't need" or how he put it. I've never been a fan of leveraged investing and have no intention of starting doing it now. If you nitpick you can say not repaying the mortgage is sort of the same as leveraged investing, but it isn't really as it will never put you in a situation where your bank/broker forces you to liquidate. I view it as a stupid low cost of housing at current rate levels, the debt is easily manegable and inflation will erode the real debt burden given time.

While the refinancing option is a sweet feature of US mortgages as it can be viewed as a one-way bet (refinance if rates drop a lot, do nothing if they increase) it comes as a price. If you had a 30y mortgage in the US with no refinancing option the rate would be approximately 0.50% lower than with refinancing option.

talltexan

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Re: DONT Payoff your Mortgage Club
« Reply #2253 on: June 04, 2020, 05:40:05 AM »
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

habaneroNorway

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Re: DONT Payoff your Mortgage Club
« Reply #2254 on: June 04, 2020, 05:48:21 AM »
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

See your point, but for me the notional is at a size where it is easily managable and part of the extra interest cost in case of a rate hike will be offset by higher deposit rates on my cash position anyway. And you have the vaguer point that low rates generally mean the ecoonomy is doing worse so there is an element of a natural hedge in there, but I'd be the first to admit that's pushing a point quite far.

Currently I can get FDIC-insured deposit rates higher than my mortgage rate so that point alone makes it pointless to pay down the balance, but that's not a normal situation and it might not last for very long.

And as we all know, if SHTF in your personal life liquidity is a lot more useful than a bit lower mortgage balance.

K-ice

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Re: DONT Payoff your Mortgage Club
« Reply #2255 on: June 04, 2020, 11:27:03 PM »
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.

Or being able to refinance for a longer period of time. I am in Canada and most people lock in their mortgage rate for 5 years while they pay it off over 25 years.  I too was concerned about a rate jump at renewal time. But worst case, your 20y mortgage becomes a 25y mortgage again. You could keep your mortgage forever.... 

habaneroNorway

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Re: DONT Payoff your Mortgage Club
« Reply #2256 on: June 05, 2020, 12:50:20 AM »
Yes, but if it's an interest-only then extending it doesnt really do much to the monthly payments anyway as there are no balance payments. Otherwise it's much the same here - standard mortgage is 25 or 30 years, but rate locks generally only available up to 10 years and most take much shorter lock which I personally don't really see the point in.

Im not denying I have more exposure to rates going up but I 1) see no plausible way that would happen anytime some and 2) if so happens I wont have a problem with it and it won't really affect my net interest cost anyway as floating deposit rates will go up as well. So in that sense I'm fairly neutral on the actual level of mortgage rates. The other side of the balance sheet, my cash position offers me ample liquidity, a safety net, reduces portfolio volatility, provides positive carry vs my mortgage at mom. The purpose of my mortgage balance at mom is to be devoured by inflation.

On another note - there is a very high probability wage growth will be very low for some time so real wages might well go down so to what extent the actual burden get smaller when rates get very low is also open for debate.

iOlly

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Re: DONT Payoff your Mortgage Club
« Reply #2257 on: June 13, 2020, 12:11:31 AM »
I hate to offer this thought in this forum, but the true protection in an adjustable rate situation is...having a lower loan balance.
That is my plan, we’re on 5-year fixed deals. Due to sort another next year. Not over-paying. When the remaining mortgage balance is less significant, we’ll go to an adjustable rate (called a Tracker in the UK) and just let it run. For now, I take a lot of comfort in knowing what I am on the hook for each month.

Should caveat the above by saying we built our forever home, and have no plans to move, ever.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2258 on: June 13, 2020, 11:26:45 AM »
Working on another refinance now.  Locked in at 2.85% 30yr with 0 points and about 2700 closing plus escrow.  Appraisal was waived as well.  Comes out to a 8 month break even after running all the numbers.

Current rate - 3.5%
New rate - 2.85%
State - Washington
Loan amount - 590k
Term - 30yr Conventional
Closing costs - 2700 (not including escrow)

Seems too good to be true but we will see....


habaneroNorway

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Re: DONT Payoff your Mortgage Club
« Reply #2259 on: June 13, 2020, 01:02:05 PM »
what are the 2700 bucks in closing costs?

solon

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Re: DONT Payoff your Mortgage Club
« Reply #2260 on: June 13, 2020, 05:33:39 PM »
Wish  I could find a deal like that. I've tried several times in the last couple months, but no joy.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2261 on: June 14, 2020, 12:08:27 AM »
what are the 2700 bucks in closing costs?

Mostly origination fees and title insurance. But the rate they quoted me had a decent amount of point pay down that they waived.  I got all the initial paperwork and everything looks legit but time will tell.  If they try to bait and switch me I'll just walk away.  I have not seen anything near this rate for my area and refinance amount so I'm hoping it works out.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2262 on: July 01, 2020, 04:17:01 PM »
So with rates dropping I shopped around some more and got another competing offer for the following.

596k
30yr
2.75%
0 points
0 lender fees
Appraisal waiver
566 lender credit towards escrow.
Washington state

So essentially they will pay me 566 to refinance from 3.5% to 2.75%. I told them I am shopping around but we locked the rate.  I'll be taking this offer to the other lender and asking them to beat it and the new lender was totally fine knowing I was using them as a bargaining chip.

It's getting crazy out there....

Telecaster

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Re: DONT Payoff your Mortgage Club
« Reply #2263 on: July 01, 2020, 06:01:30 PM »
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.

FIreDrill

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Re: DONT Payoff your Mortgage Club
« Reply #2264 on: July 01, 2020, 07:03:37 PM »
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.

I'm not seeing rates like this on bankrate for my balance either but if you find the right lender or two it seems you can get some crazy good offers and some competition going.

The first lender is Caliber and the second is LoanDepot.

So far LoanDepot has been a better customer experience so I may just go with them if Caliber gives me any issues.

kenmoremmm

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Re: DONT Payoff your Mortgage Club
« Reply #2265 on: July 02, 2020, 12:21:58 AM »
wow, crazy that caliber came in so low. we had checked with them 6 years ago and they were easily 3/8 to 1/2 point higher than most big name banks.

dragoncar

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Re: DONT Payoff your Mortgage Club
« Reply #2266 on: July 02, 2020, 01:32:40 AM »
Woah, who is your lender?  I live in WA and I'm not seeing rates like that.  But I don't owe a lot, so perhaps that makes my loan less attractive.

I'm not seeing rates like this on bankrate for my balance either but if you find the right lender or two it seems you can get some crazy good offers and some competition going.

The first lender is Caliber and the second is LoanDepot.

So far LoanDepot has been a better customer experience so I may just go with them if Caliber gives me any issues.

Just finished a refinance and discovered a boglehead thread too late (https://www.bogleheads.org/forum/viewtopic.php?f=2&t=289559)

You don't need to start at the beginning. Lots of good info on current rates and deals.  With the knowledge there I think I could have gotten a few basis points lower.