DONT Payoff your Mortgage Club

[Fomerly known as something]

Let’s see accounting for DAF donations.  My brokerage account is up 200k since I bought my condo in 2022 which is up 30%.  My taxable brokerage account is now 1.6 times my mortgage.  This doesn’t account for any retirement accounts.

[Fomerly known as something]

Made my normal rounded up to the nearest $50 payment this month (“round numbers”).  I also added up my 4th quarter dividends from my Vanguard accounts.  Once again I’m making more just on dividends than I’m paying in interest.  (This doesn’t count my bank account or TSP interest/dividens)

[Dicey]

^^Sweet!^^

[Fomerly known as something]

In a Dave Ramsey Reddit group today, I was told millionaires I was lying about my money since millionaires pay cash and don’t take out home loans.  By someone who isn’t a millionaire.  DPOYM.

[Dicey]

In a Dave Ramsey Reddit group today, I was told millionaires I was lying about my money since millionaires pay cash and don’t take out home loans.  By someone who isn’t a millionaire.  DPOYM.

Related: we got a begging letter from granddaughter's public charter school, with a handwritten note. I texted her mom before year-end asking if we should support the school, her daughter's 529 or some combination. She didn't respond, so I didn't pursue it. Today she texted me about something else. A couple of minutes later, she said she had just noticed the previous message. Her response was that the school is full of children of millionaires and billionaires who donate plenty of money. Well, we're certainly not billionaires...

[JupiterGreen]

30yr 330k mortgage at 6.375% fixed, with that rate our inclination is to pay it off early. Would you still not pay it off? We paid off our last one but it was almost half the amount and relatively easy to pay off. We then threw all our money at retirement accounts and built up a good stash that is now around 1.8m. We'll probably work for no more than 8 years. Our goal is to get a little over 2m before retirement and I believe our investments will do that on their own, but IDK. Despite all this money I don't think of myself as super financially savvy or having a math mind, I've just been throwing money at retirement like a trained monkey. Perhaps there are nuances I should consider.

[RWD]

Our mortgage is also 6.375% and we are not paying extra on it.

[Rockies]

Just watched a Dave Ramsey video on how they recommend paying off your home after you pay 15% into retirement until house is paid off. Theory is that they studied millionaires and the extra stability and lack of monthly payments led people to take bigger risks with careers that actually ended up meaning they made more money.

I put 50% down on my house to have a low payment so I am not exactly in a hurry to spend more to pay off the house while I have a low interest rate I think letting my investments grow is a good diversification.

[NorthernIkigai]

I put 50% down on my house to have a low payment so I am not exactly in a hurry to spend more to pay off the house while I have a low interest rate I think letting my investments grow is a good diversification.

I only now realized, reading this, that a key part of me being happy to keep a (variable rate) mortgage for what is now until normal retirement age and will probably be past that age (if the bank will let us, once we're done with rearranging stuff) is that I would definitely put about half of the price down. It was a bit more with our first home when we were still earlier in our careers and left with less invested elsewhere, and would get closer to 40% now when money is even less tight.

Having only 20% down as many people in the US (and here, too, or some have even much less) would scare me about as much as the words "variable rate" scare some other people...

[JupiterGreen]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

[dandarc]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

Not speaking for RWD, but I'm personally 6 months into a 30 year loan at 7.25% (could not have timed our move last year worse . . . oh well) and yeah, the plan is to just let it ride while looking for refinance opportunities. Maybe after we max-out our tax-advantaged accounts in a given year we'll throw some extra at the mortgage when interest rate is this high. But I'm self-employed and working part time, so that's over $50K to investments first - may not get to the mortgage. Which is perfectly fine for us.

[RWD]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

Not speaking for RWD, but I'm personally 6 months into a 30 year loan at 7.25% (could not have timed our move last year worse . . . oh well) and yeah, the plan is to just let it ride while looking for refinance opportunities. Maybe after we max-out our tax-advantaged accounts in a given year we'll throw some extra at the mortgage when interest rate is this high. But I'm self-employed and working part time, so that's over $50K to investments first - may not get to the mortgage. Which is perfectly fine for us.

Similar here. We're putting about $62k/year in to tax-advantaged accounts. Any post-tax excess when the emergency fund is full goes in to a Vanguard brokerage. Portfolio is a mix of US/Intl stocks, US bonds, and REITs. We're hoping to refinance at some point but I don't plan to pay extra on it even if we don't get that opportunity. I will consider paying off the mortgage early in a lump sum if we ever have the funds on hand to do so and retirement modelling (e.g. cFIREsim) shows that to be a superior strategy. In the meantime I'd much rather have $400k in our brokerage along with a $600k mortgage than $0 in our brokerage and $200k left on the mortgage.

[lcmac32]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

@RWD this post might well put me back in this club. 

Not speaking for RWD, but I'm personally 6 months into a 30 year loan at 7.25% (could not have timed our move last year worse . . . oh well) and yeah, the plan is to just let it ride while looking for refinance opportunities. Maybe after we max-out our tax-advantaged accounts in a given year we'll throw some extra at the mortgage when interest rate is this high. But I'm self-employed and working part time, so that's over $50K to investments first - may not get to the mortgage. Which is perfectly fine for us.

Similar here. We're putting about $62k/year in to tax-advantaged accounts. Any post-tax excess when the emergency fund is full goes in to a Vanguard brokerage. Portfolio is a mix of US/Intl stocks, US bonds, and REITs. We're hoping to refinance at some point but I don't plan to pay extra on it even if we don't get that opportunity. I will consider paying off the mortgage early in a lump sum if we ever have the funds on hand to do so and retirement modelling (e.g. cFIREsim) shows that to be a superior strategy. In the meantime I'd much rather have $400k in our brokerage along with a $600k mortgage than $0 in our brokerage and $200k left on the mortgage.

I totally agree, but I can't help paying extra to the mortgage.  I also moved at the worst time for housing (b/c of interest rates).  The high rate and my age has me at least shaving at least a decade of the term with add. prin. payments.   When and if rates go back to the 3% range, I will refi and be firmly back in this club.

[dandarc]

I personally wouldn't pay extra before maxing out whatever I can put into tax-advantaged accounts. Even at my 7.25% interest rate, tax savings + expected growth means I should have more money by prioritizing the tax-advantaged accounts. Even taxable brokerage is likely a better move, but it is closer because of the lack of tax benefits.

Gotta look at finances as a whole picture. When we focus too much just on the mortgage, we can easily make sub-optimal decisions. Keeping mortgages with these higher rates is not the slam dunk it was when you could easily get 3-4%, but still the best option more often than not.

[Dicey]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

@RWD this post might well put me back in this club. 

Not speaking for RWD, but I'm personally 6 months into a 30 year loan at 7.25% (could not have timed our move last year worse . . . oh well) and yeah, the plan is to just let it ride while looking for refinance opportunities. Maybe after we max-out our tax-advantaged accounts in a given year we'll throw some extra at the mortgage when interest rate is this high. But I'm self-employed and working part time, so that's over $50K to investments first - may not get to the mortgage. Which is perfectly fine for us.

Similar here. We're putting about $62k/year in to tax-advantaged accounts. Any post-tax excess when the emergency fund is full goes in to a Vanguard brokerage. Portfolio is a mix of US/Intl stocks, US bonds, and REITs. We're hoping to refinance at some point but I don't plan to pay extra on it even if we don't get that opportunity. I will consider paying off the mortgage early in a lump sum if we ever have the funds on hand to do so and retirement modelling (e.g. cFIREsim) shows that to be a superior strategy. In the meantime I'd much rather have $400k in our brokerage along with a $600k mortgage than $0 in our brokerage and $200k left on the mortgage.

I totally agree, but I can't help paying extra to the mortgage.  I also moved at the worst time for housing (b/c of interest rates).  The high rate and my age has me at least shaving at least a decade of the term with add. prin. payments.   When and if rates go back to the 3% range, I will refi and be firmly back in this club.

Don't count on that. I suspect it was a once-in-a-lifetime opportunity. I can't remember what my earlier mortgage rates were, but I remember exactly where I was standing and how thrilled I was to learn that I'd scored a 7% loan in 2001.

It still makes sense not to pay off the mortgage, even at somewhat higher rates.

[dragoncar]

I probably already posted this, but it’s been posited that you should not pay off mortgage less than 3% above 10-year treasury yield (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)

Right now that means mortgages under around 7.5%

It’s not a hard rule but it gives you an idea of how to take the current market environment into account when making the decision

[ChpBstrd]

I probably already posted this, but it’s been posited that you should not pay off mortgage less than 3% above 10-year treasury yield (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)

Right now that means mortgages under around 7.5%

It’s not a hard rule but it gives you an idea of how to take the current market environment into account when making the decision

I find the 10y yield + 3% guidance intriguing.

That was @MDM 's advice back in December 2016 when mortgage yields were about 4.15% and 10 year treasury notes yielded about 2.4%.

The yield on Moody's Baa rated bonds was about 2.4% above the yield on the 10 year treasury note at that time. So bond yields were around 4.8% vs mortgages at 4.15%. Now, that same spread is only about 1.4%.



We now have an inversion compared to 2016. Back then, bonds paid higher yields than the interest rate on mortgages, but now mortgages have much higher interest rates than bonds. In my opinion, this change in conditions has warranted a change in advice. If you have a mortgage >6% maybe you should invest in paying it off (while maintaining liquidity), because your alternative investments have lower yields, even when you take on the added risk of a Baa bond rating as opposed to the risk-free return on your mortgage. And that's not even factoring in the tax-free nature of the mortgage return vs. the bonds.

[lcmac32]

I probably already posted this, but it’s been posited that you should not pay off mortgage less than 3% above 10-year treasury yield (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)

Right now that means mortgages under around 7.5%

It’s not a hard rule but it gives you an idea of how to take the current market environment into account when making the decision

I find the 10y yield + 3% guidance intriguing.

That was @MDM 's advice back in December 2016 when mortgage yields were about 4.15% and 10 year treasury notes yielded about 2.4%.

The yield on Moody's Baa rated bonds was about 2.4% above the yield on the 10 year treasury note at that time. So bond yields were around 4.8% vs mortgages at 4.15%. Now, that same spread is only about 1.4%.



We now have an inversion compared to 2016. Back then, bonds paid higher yields than the interest rate on mortgages, but now mortgages have much higher interest rates than bonds. In my opinion, this change in conditions has warranted a change in advice. If you have a mortgage >6% maybe you should invest in paying it off (while maintaining liquidity), because your alternative investments have lower yields, even when you take on the added risk of a Baa bond rating as opposed to the risk-free return on your mortgage. And that's not even factoring in the tax-free nature of the mortgage return vs. the bonds.

Great post.  I have said that I am in between camps at the moment.  I have historically always been don't payoff the mortgage early camp.  The higher interest rates and the guaranteed tax free 6.625% puts that at 8-9% comparable return, maybe higher.   I already max out the tax advantaged accounts.  I am rebuilding my cash reserve.  It once was ~$125k.  I new house and remodel took that down to $0.00.  I have rebuilt to about $60k.  The other factor is that we have had an historic run on market returns post pandemic.  (2023 being the worst of those if I recall).  There is no promise of future returns in the market.  I am striking a balance of about 1:4 or 1:5 in mtg payoff to savings rate ratio outside of the tax advantaged accounts.  I am not all in on paying the mtg down, it is part of the overall plan.  I do however, 100% agree that having enough liquid assets is also very important if we have a SHTF moment.  I do think refi'ing below 5-6% would have me back not paying extra principle.

[lcmac32]

Our mortgage is also 6.375% and we are not paying extra on it.

Assuming you have extra money to put towards the principle, how are you investing that money? Are you planning to let the mortgage go the entire 30 years or will you pay it off at some point? I appreciate you sharing your thoughts/experiences.

@RWD this post might well put me back in this club. 

Not speaking for RWD, but I'm personally 6 months into a 30 year loan at 7.25% (could not have timed our move last year worse . . . oh well) and yeah, the plan is to just let it ride while looking for refinance opportunities. Maybe after we max-out our tax-advantaged accounts in a given year we'll throw some extra at the mortgage when interest rate is this high. But I'm self-employed and working part time, so that's over $50K to investments first - may not get to the mortgage. Which is perfectly fine for us.

Similar here. We're putting about $62k/year in to tax-advantaged accounts. Any post-tax excess when the emergency fund is full goes in to a Vanguard brokerage. Portfolio is a mix of US/Intl stocks, US bonds, and REITs. We're hoping to refinance at some point but I don't plan to pay extra on it even if we don't get that opportunity. I will consider paying off the mortgage early in a lump sum if we ever have the funds on hand to do so and retirement modelling (e.g. cFIREsim) shows that to be a superior strategy. In the meantime I'd much rather have $400k in our brokerage along with a $600k mortgage than $0 in our brokerage and $200k left on the mortgage.

I totally agree, but I can't help paying extra to the mortgage.  I also moved at the worst time for housing (b/c of interest rates).  The high rate and my age has me at least shaving at least a decade of the term with add. prin. payments.   When and if rates go back to the 3% range, I will refi and be firmly back in this club.

Don't count on that. I suspect it was a once-in-a-lifetime opportunity. I can't remember what my earlier mortgage rates were, but I remember exactly where I was standing and how thrilled I was to learn that I'd scored a 7% loan in 2001.

It still makes sense not to pay off the mortgage, even at somewhat higher rates.

I agree those were once in a life time level rates.  I remember when growing up that my parents thought 10% was a great rate.  I remember refi-ing first home to sub 5% and was like this is great.  Got spoiled on my previous home 2% on 15yr. mtg.  Now in a 6.625% on 30 year which blows, but I did 2.12 my pay rate, so no worries at this point.  Hoping to get to 3x my pay this year from the job I left  in 2022.  The rates will come down again.  I think we will go sub 6% this year, but barely on the 30year mtg.  Not sure yet what my refi point will be, but will likely need to be at least 2% lower than my current rate.

[dandarc]

Hope you're right on rates going down - I personally don't think that's super likely unless the Trump recession hits pretty quickly.

[Tyson]

I'm still sitting on my 2.9% mortgage.  I will never pay it off early. 

[lcmac32]

I'm still sitting on my 2.9% mortgage.  I will never pay it off early.

Neither would I!!!  Well done!

[Dicey]

I'm still sitting on my 2.9% mortgage.  I will never pay it off early.

Neither would I!!!  Well done!

Awesome! We still have three mortgages in the mid-threes to low fours and we're never paying them off.

[ChpBstrd]

Well, a LOT of people are ending their sub-4% mortgages. Per this Wolfstreet article, the share of mortgages with <4% rates fell from about 65% in 2022 to about 55% in 2024.


The article cites life circumstances as the reason why people are trading low mortgages for higher mortgages. Deaths, divorces, job-related moves, homes destroyed by disasters, foreclosures, and other reasons can snatch our sub-4% mortgages from our hands (or our estate's hands) despite our plans to never pay them off.

And of course these data about share percentages obscure the fact that some mortgages reach the end of their term every day, and someone else buys their first home every day. Some amount of replacement should be expected to occur even if 100% of people holding sub-4% mortgages held on for dear life until the scheduled payoff, despite all the circumstances listed above.

For example, sub-4% 15 year mortgages became available in 2010, and will be reaching the end of their term this year, unless the owner made extra payments in the ZIRP era, in which case they rolled off earlier - perhaps appearing in the charts above. Only 2.3% of homeowners use ARMs, but all of these in existence would have reset above 4% in the same timeframe.

However, there is something bigger going on if 15.4% of mortgages with stellar rates cannot continue for just two years. Scheduled payoff can only explain perhaps 2% of this drop, given that no sub-4% 30y mortgages are near their scheduled payoff dates. The number of 15-year mortgages being paid off is tiny because they're not all that popular and we're just now hitting the 15 year mark since these first fell below 4%. The question of how many ARMs are represented in these data needs further research, but I would guess 7-8%? Then of course there are the people who will make advance payments to reduce their mortgages no matter how low the rate (maybe 1%?), plus the people who are tricked by salesmen into refinancing their low-rate mortgages (<1%).

Probably most just moved or got foreclosed, for all the usual reasons.

Even if only 5% of homeowners with sub-4% fixed mortgages are unable or unwilling to hold those loans for a mere 2 years, that still calls into question the validity of our plans to hold our own sub-4% mortgages for another 10-25 years. This, in turn, calls into question our retirement or FIRE planning. If my estimated 5% of us get picked off every 2 years, then in 10 years about a quarter of us will have different housing plans and expense profiles than we have today. In 20 years, half of our housing plans may have changed. And that's with the financial certainty we thought we had with home ownership and locked-in fixed rate mortgages!

Should we even be advising people to buy homes if life is too precarious for millions of people to hold onto bargain home loans for just a couple years? Can we really build financial models that project our current housing costs 10+ years into the future? The data suggest maybe not.

[Tyson]

I think most people only care about how much the payment is and how nice the house/neighborhood is.  They are willing to take out higher rate mortgages, IMO, if they are moving for a job (and likely a pay bump) or they have kids and want to move to a nicer school district, or finally decide to move to that 'nice neighborhood'. 

Very few people think like us Mustachians.  They are more than willing to end up with a higher rate as long as they can 'afford it' and 'the house is nice'.

[ChpBstrd]

I think most people only care about how much the payment is and how nice the house/neighborhood is.  They are willing to take out higher rate mortgages, IMO, if they are moving for a job (and likely a pay bump) or they have kids and want to move to a nicer school district, or finally decide to move to that 'nice neighborhood'. 

Very few people think like us Mustachians.  They are more than willing to end up with a higher rate as long as they can 'afford it' and 'the house is nice'.

And so the unwritten part here is that they'll sign the note for the most expensive house a lender will let them buy, only to lose it or be forced to sell when it turns out they cannot afford it through some job loss or financial issue, right?

[lcmac32]

I don't see rates falling much this year.  We will have to see if the lack of lower rates will cause house prices to fall.  The market for affordable housing seems to be still out of reach for the sub 40 year old crowd. The 3-5 I am in contact with have no desire for a house with a mtg. 

I agree with a previous poster that most people do not think like mustachians.  I even struggle with certain parts of it.  My savings rate is still not as high as I believe it should be.  People respond to the incentives placed before them.  Many will think nice house/nice schools/nice neighborhood = happy life, but it often does not.  The fallacy occurs because they never take the time to define what makes them happy.  It is more of a I think x will make me happy or I live here (y) and that makes me unhappy.  The core of mustachianism to me is a certain amount of efficiency in multiple aspects of life improves the quality of life immensely.  It forces one to start figuring that out.  Me - golf 3x per week in good weather season = big happiness boost.  Thus the money spent in this area, which isn't an insignificant amount, is literally some the best investment (figuratively) I ever make.

[NorthernIkigai]

I think most people only care about how much the payment is and how nice the house/neighborhood is.  They are willing to take out higher rate mortgages, IMO, if they are moving for a job (and likely a pay bump) or they have kids and want to move to a nicer school district, or finally decide to move to that 'nice neighborhood'. 

Very few people think like us Mustachians.  They are more than willing to end up with a higher rate as long as they can 'afford it' and 'the house is nice'.

And so the unwritten part here is that they'll sign the note for the most expensive house a lender will let them buy, only to lose it or be forced to sell when it turns out they cannot afford it through some job loss or financial issue, right?

That won't happen to them, only to other people. /s

[Tyson]

I think most people only care about how much the payment is and how nice the house/neighborhood is.  They are willing to take out higher rate mortgages, IMO, if they are moving for a job (and likely a pay bump) or they have kids and want to move to a nicer school district, or finally decide to move to that 'nice neighborhood'. 

Very few people think like us Mustachians.  They are more than willing to end up with a higher rate as long as they can 'afford it' and 'the house is nice'.

And so the unwritten part here is that they'll sign the note for the most expensive house a lender will let them buy, only to lose it or be forced to sell when it turns out they cannot afford it through some job loss or financial issue, right?

That won't happen to them, only to other people. /s

Well, they are consumah suckas after all.

[neo von retorch]

While this thread is about the math, living life mindfully is about more than that.

We gave up a 2.99% mortgage, moving 90 minutes closer to my 76 year old father, as well as my 3 siblings and their 8 kids.

It's a lower cost of living area, but we "upgraded" a bit, newer stuff all around after selling our old house and buying the new one, more land, some extras like a generator, 2nd garage bay, central air conditioning. The prices of the homes we sold and bought were almost identical.

But overall I think it was 100% the best move for our lives, our happiness, our mental health, how we choose to use our times.

Our new mortgage rate is 5.95%, almost exactly double. Sure it's not fun paying that additional mortgage interest every month, but it is quite fulfilling hosting family frequently!

[Dicey]

Great example of how you can live happily, mindfully, and still not prepay the mortgage. Go, neo!

[Telecaster]

Should we even be advising people to buy homes if life is too precarious for millions of people to hold onto bargain home loans for just a couple years? Can we really build financial models that project our current housing costs 10+ years into the future? The data suggest maybe not.

Nah.  The rent vs. buy calculator just has different inputs.   

[talltexan]

Setting aside the mortgage rates, there are enough other frictions associated with buying/selling real estate that we typically advise people NOT to buy a house if they think they'll need to move after fewer than 3 years or maybe even 5.

[ChpBstrd]

Should we even be advising people to buy homes if life is too precarious for millions of people to hold onto bargain home loans for just a couple years? Can we really build financial models that project our current housing costs 10+ years into the future? The data suggest maybe not.

Nah.  The rent vs. buy calculator just has different inputs.

Setting aside the mortgage rates, there are enough other frictions associated with buying/selling real estate that we typically advise people NOT to buy a house if they think they'll need to move after fewer than 3 years or maybe even 5.

Right... so the rent vs. buy calculator should probably assume you will sell at some point less than 30 years from now, because so few people stay in the same house 30 years. We need a new way to calculate whether a person will break even or not, that incorporates the probability of their plans changing.

Maybe it's fair to say if you cannot break even from a net worth perspective after 8 years or 10 years of home ownership, then renting is the financially optimal solution. Or we could apply something like a discount rate based on the population's turnover of the housing so that the savings that occur in the distant future are discounted to reflect the probability of their never occurring.

[Flyingstache]

I was advised to post this here!

Hello!

My wife & I bought my grandparents house from their estate at the end of 2023. We bought the house for $420k & got a loan for $330k. Due to some issues with family & how the estate was set up, our best option at the time of closing was a 5/1 Arm at 6.25%

Our mortgage (including escrow) is $2,548.01/month. $56/day is simply interest. We currently owe $321k on the house & it is worth conservatively, $450k.

I know rates aren't much better currently but I wasn't sure at what point it would become worth it to refi to a fixed rate at either 20yr or 15yr. I worry that in 2028 when the first adjustment comes on the interest rate that we could have an even higher rate.

My wife & I are both 33yrs old & are teachers in central OH. Recently welcomed our 4th child. In our stage of life right now our two biggest expenses, by far, are this house & our childcare. Between the mortgage & childcare, my paycheck is essentially used each month to cover those items.

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

Just brainstorming right now & have reached out to a few lenders to get initial info.

Would love your thoughts & thank you as always for sharing your thoughts & wisdom!

[RWD]

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

In order to get to parity with your current monthly payment you'd need an interest rate of 4.6% for a 20-year fixed or 1.8% for a 15-year fixed.

In general the 20-year options typically don't have much of a benefit in interest rate compared to a 30-year though. Currently BankRate says the refinance rate for a 30-year is 6.91% while 20-year is 6.73% (these are national averages, I believe). As a result, usually you're better served by the 30-year.

You may also play around with paying points to reduce the rate when/if you refinance. FYI, the amount you pay in points is deductible on your taxes just like mortgage interest.

[Dicey]

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

In order to get to parity with your current monthly payment you'd need an interest rate of 4.6% for a 20-year fixed or 1.8% for a 15-year fixed.

In general the 20-year options typically don't have much of a benefit in interest rate compared to a 30-year though. Currently BankRate says the refinance rate for a 30-year is 6.91% while 20-year is 6.73% (these are national averages, I believe). As a result, usually you're better served by the 30-year.

You may also play around with paying points to reduce the rate when/if you refinance. FYI, the amount you pay in points is deductible on your taxes just like mortgage interest.

That's true, but you can't take it all at once. You have to amortize a tiny bit each year for X ^{[citation needed]} number of years. You can't take it as a lump sum when you sell the property, either. It's still absolutely worth looking into.

[RWD]

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

In order to get to parity with your current monthly payment you'd need an interest rate of 4.6% for a 20-year fixed or 1.8% for a 15-year fixed.

In general the 20-year options typically don't have much of a benefit in interest rate compared to a 30-year though. Currently BankRate says the refinance rate for a 30-year is 6.91% while 20-year is 6.73% (these are national averages, I believe). As a result, usually you're better served by the 30-year.

You may also play around with paying points to reduce the rate when/if you refinance. FYI, the amount you pay in points is deductible on your taxes just like mortgage interest.

That's true, but you can't take it all at once. You have to amortize a tiny bit each year for X ^{[citation needed]} number of years. You can't take it as a lump sum when you sell the property, either. It's still absolutely worth looking into.

Citation needed for sure. When I filed our 2023 taxes I deducted the entire amount paid on points (about $12k).

[Dicey]

I'm tax no expert, which is why I happily pay a CPA. It was certainly a bummer to get that advice from them.

A quick google search just now produces conflicting answers. Perhaps one of our resident experts will clarify.

It may make a difference that the only mortgages or re-fis we have done in the last decade are for investment properties.

[dandarc]

Quick read of publication 527 - wow that is complex on rental properties. Indeed no option to deduct all in the year paid.

But when I run through the tool linked below for the mortgage on the home I purchased last year as our new primary residence, it clearly states:

"You can deduct your points either in the year they were paid or equally over the life of the loan."

Lots of questions to get there. https://www.irs.gov/help/ita/can-i-deduct-my-mortgage-related-expenses

[neo von retorch]

Quick read of publication 527 - wow that is complex on rental properties. Indeed no option to deduct all in the year paid.

But when I run through the tool linked below for the mortgage on the home I purchased last year as our new primary residence, it clearly states:

"You can deduct your points either in the year they were paid or equally over the life of the loan."

Lots of questions to get there. https://www.irs.gov/help/ita/can-i-deduct-my-mortgage-related-expenses

I don't think I deduced my points. They were handled as seller credits; do you think I can deduct them? I already filed for this year, though I could possibly amend... or as you said above, "equally over the life of the loan"?

But if I need to get them on record for Fiscal Year 2024, I probably need to amend my tax return?

[dandarc]

Run through the utility - it asks a lot of detailed questions to figure it out.

[neo von retorch]

Run through the utility - it asks a lot of detailed questions to figure it out.

Actually, this was super helpful because one of the final questions was.... do the points show up on your 1098, and they do. Which means I probably entered them. Logging into check now... OK yes the total showing up on my final tax return for "mortgage interest + points" adds up to the amount of my old mortgage, new mortgage, and points.

*whew*

My brain is so much worse than it used to be, but I managed to do this correctly, and then a few weeks later, forget that I did it correctly ;)

Thank you!

[Dicey]

Run through the utility - it asks a lot of detailed questions to figure it out.

Actually, this was super helpful because one of the final questions was.... do the points show up on your 1098, and they do. Which means I probably entered them. Logging into check now... OK yes the total showing up on my final tax return for "mortgage interest + points" adds up to the amount of my old mortgage, new mortgage, and points.

*whew*

My brain is so much worse than it used to be, but I managed to do this correctly, and then a few weeks later, forget that I did it correctly ;)

Thank you!

Your brain and mine have a lot in common. If you're interested in learning more, google "ADNI" and the name of the biggest city in your region. I'm in it (as are a couple of other Mustachians) and it's oddly comforting. Here's a map of sites:

https://adni.loni.usc.edu/about/governance/60-clinical-sites/

[Flyingstache]

Apologies for the delay but finally got the information that was requested @Dicey

Per the CD -

Index + Margin = 5yr CMT + 2.75%

Initial Interest rate = 6.25%

Minimum/Maximum Interest Rate = 6.25%/11.25%

Limits on interest rate changes = 3%

Property tax for 2025 - $5,412.08

Insurance - $1,861.88

Thanks & appreciate the insights!

I was advised to post this here!

Hello!

My wife & I bought my grandparents house from their estate at the end of 2023. We bought the house for $420k & got a loan for $330k. Due to some issues with family & how the estate was set up, our best option at the time of closing was a 5/1 Arm at 6.25%

Our mortgage (including escrow) is $2,548.01/month. $56/day is simply interest. We currently owe $321k on the house & it is worth conservatively, $450k.

I know rates aren't much better currently but I wasn't sure at what point it would become worth it to refi to a fixed rate at either 20yr or 15yr. I worry that in 2028 when the first adjustment comes on the interest rate that we could have an even higher rate.

My wife & I are both 33yrs old & are teachers in central OH. Recently welcomed our 4th child. In our stage of life right now our two biggest expenses, by far, are this house & our childcare. Between the mortgage & childcare, my paycheck is essentially used each month to cover those items.

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

Just brainstorming right now & have reached out to a few lenders to get initial info.

Would love your thoughts & thank you as always for sharing your thoughts & wisdom!

[Dicey]

Apologies for the delay but finally got the information that was requested @Dicey

Per the CD -

Index + Margin = 5yr CMT + 2.75%

Initial Interest rate = 6.25%

Minimum/Maximum Interest Rate = 6.25%/11.25%

Limits on interest rate changes = 3%

Property tax for 2025 - $5,412.08

Insurance - $1,861.88

Thanks & appreciate the insights!

I was advised to post this here!

Hello!

My wife & I bought my grandparents house from their estate at the end of 2023. We bought the house for $420k & got a loan for $330k. Due to some issues with family & how the estate was set up, our best option at the time of closing was a 5/1 Arm at 6.25%

Our mortgage (including escrow) is $2,548.01/month. $56/day is simply interest. We currently owe $321k on the house & it is worth conservatively, $450k.

I know rates aren't much better currently but I wasn't sure at what point it would become worth it to refi to a fixed rate at either 20yr or 15yr. I worry that in 2028 when the first adjustment comes on the interest rate that we could have an even higher rate.

My wife & I are both 33yrs old & are teachers in central OH. Recently welcomed our 4th child. In our stage of life right now our two biggest expenses, by far, are this house & our childcare. Between the mortgage & childcare, my paycheck is essentially used each month to cover those items.

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

Just brainstorming right now & have reached out to a few lenders to get initial info.

Would love your thoughts & thank you as always for sharing your thoughts & wisdom!

This chart kind of underscores my point. No one knows where the market will go, but it doesn't always go up.

https://fred.stlouisfed.org/graph/?g=5abD

About this: 'Limits on interest rate changes = 3%" - Is that over the life of the loan? Can it go up 3% in one cycle? That is a potentially a huge jump. I suspect there might be an annual cap, with 3% being the max, but I'd definitely want to know that for sure.

[sonofsven]

Apologies for the delay but finally got the information that was requested @Dicey

Per the CD -

Index + Margin = 5yr CMT + 2.75%

Initial Interest rate = 6.25%

Minimum/Maximum Interest Rate = 6.25%/11.25%

Limits on interest rate changes = 3%

Property tax for 2025 - $5,412.08

Insurance - $1,861.88

Thanks & appreciate the insights!

I was advised to post this here!

Hello!

My wife & I bought my grandparents house from their estate at the end of 2023. We bought the house for $420k & got a loan for $330k. Due to some issues with family & how the estate was set up, our best option at the time of closing was a 5/1 Arm at 6.25%

Our mortgage (including escrow) is $2,548.01/month. $56/day is simply interest. We currently owe $321k on the house & it is worth conservatively, $450k.

I know rates aren't much better currently but I wasn't sure at what point it would become worth it to refi to a fixed rate at either 20yr or 15yr. I worry that in 2028 when the first adjustment comes on the interest rate that we could have an even higher rate.

My wife & I are both 33yrs old & are teachers in central OH. Recently welcomed our 4th child. In our stage of life right now our two biggest expenses, by far, are this house & our childcare. Between the mortgage & childcare, my paycheck is essentially used each month to cover those items.

At what point or interest rate would you say it is worth going through the refi process? I figured potential positives of such a move include getting a fixed rate locked in vs. one that adjusts every 5yrs & if we could reduce the term to 20 or 15, still pay a similar or smaller amount & have the principal paid down faster that would also be nice!

Just brainstorming right now & have reached out to a few lenders to get initial info.

Would love your thoughts & thank you as always for sharing your thoughts & wisdom!

ARM's scare me. Yours has a minimum rate of 6.25% as well, so I can see why you're interested in refinancing since your rate can't get any better.
However, you're at the mercy of market forces. Rising inflation generally means rising interest rates, while an economic slowdown puts pressure on the Fed to lower interest rates.
If I had to guess, I think rates will drop (no idea by how much); Trump has previously made noises about forcing the Fed to lower rates. As his economy founders I can see that increasing. Maybe. Or, not.
So what to do?
Get your financial house in order by paying off any outstanding debt, especially cc debt, but also car loans.
Don't take on any new debt, including car loans.
Don't quit your jobs.
Don't apply for a bunch of new credit cards.
The goal is to get your credit rating as high as possible so you qualify for the very best terms.
The website Bankrate has a lot of useful mortgage and refinance calculators that you can play with to try out different rate and term scenarios, which is helpful on a macro level for comparison to your current loan.
But the unknown part in making these comparisons is closing costs, since you don't really know your closing costs until you apply, only estimates.
I'm not a believer in paying much, if any, in closing costs because we can't know the future.
You understand the concept of the break even period, I assume?
For example, if your closing costs are $2500 but your monthly payment will be $50 lower, you divide 2500 by 50 and get 50, meaning it will take four years and two months to break even on your new loan.
Obviously, a lot can happen in four years. You could decide to sell, find a different house, or rates could drop further leading to even better refinance opportunities.
As rates were dropping in '21-22, I refinanced four times in 1.5 years, eventually settling on 2.75% thirty year no cost loan. If I'd wanted to pay points I could have had a 1.95% thirty year term!
Here's a Bankrate article that talks about no cost refinance opportunities https://www.bankrate.com/mortgages/is-no-closing-cost-for-you/
I chose the no closing costs with slightly higher interest rate options, but at that time it was a feeding frenzy of opportunity.

https://www.bogleheads.org/forum/viewtopic.php?t=289559&start=12950   This Bogleheads mega thread on refinancing was helpful to me as well. You'll find real examples of the kinds of deals people are really getting, and details on how they got them. Obviously, the thread is not going to be as active now as it was when rates were in freefall, but it's still valuable.
A site like Bankrate, or Nerdwallet, claims to have acces to the best deals, but they are a little disingenuous because they lack the details needed to truly make an informed decision, and you don't get that level of detail until you apply and get the truth in lending statement which details all your costs, and you don't want to apply too many times as it could have a negative effect on your credit score.
So learn as much as you can about the process and strike when the iron is hot.