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Started By
Message
Refinancing To 15-Year...Should I Take The Plunge?
Posted on 1/17/13 at 2:37 pm
Posted on 1/17/13 at 2:37 pm
In 2009, I refinanced my mortgage to get down to 4.5%. I had an FHA loan originally, so it was a lot of money out of pocket to refi to a traditional 30-year mortgage with no PMI, etc.
Ever since the refi, I've been paying extra on the principal each month to where the whole thing will be paid off in 20 years.
The only way I'll take the plunge is if it's without escrow. I have that now, and let's just say I prefer things that way.
Would doing a 15-year refi be worth it at this point? Roughly have about $85,000 left on the loan, and monthly payment is $500 (extra principal makes it $630). Credit is excellent, so I should be able to get the lowest rate that's currently out there.
Advice, suggestions, etc. are greatly appreciated!
Ever since the refi, I've been paying extra on the principal each month to where the whole thing will be paid off in 20 years.
The only way I'll take the plunge is if it's without escrow. I have that now, and let's just say I prefer things that way.
Would doing a 15-year refi be worth it at this point? Roughly have about $85,000 left on the loan, and monthly payment is $500 (extra principal makes it $630). Credit is excellent, so I should be able to get the lowest rate that's currently out there.
Advice, suggestions, etc. are greatly appreciated!
This post was edited on 1/17/13 at 3:02 pm
4
Posted on 1/17/13 at 3:16 pm to LAmagnolia
Yes.
go to bankrate.com and play with the calculator yourself
85000 for 26 years @ 4.5% and adding $130 to your principal, your payoff date is April 2030 with $37,209.61 in total interest
plug in 88K for 15 years @ 2.9% and your payoff date is Jan 2028 with $20,627.93 total interest
these are very basic calculations, but I say yes
go to bankrate.com and play with the calculator yourself
85000 for 26 years @ 4.5% and adding $130 to your principal, your payoff date is April 2030 with $37,209.61 in total interest
plug in 88K for 15 years @ 2.9% and your payoff date is Jan 2028 with $20,627.93 total interest
these are very basic calculations, but I say yes
Posted on 1/17/13 at 3:44 pm to LSU6262
Part of what concerns me is if a lender tries to charge a hefty fee for not having escrow...
New Penn Financial is one place I've read about that supposedly offers roughly 2.9% with no points. Anybody have any experience with them?
Posted on 1/17/13 at 3:48 pm to LAmagnolia
quote:
Credit is excellent, so I should be able to get the lowest rate that's currently out there.
In that case, get the 30 instead.
Yes, the 15 has a lower rate, but once you account for taxes the rate is lower than inflation. This means your return from paying the higher note is negative after inflation.
That's right - your larger payment has a negative real return. Sometimes low isn't as good as one might think. The only way a 15 is better than a 30 is if rates stay this low for the next 20-25 years or so.
So get the 30 instead.
Posted on 1/17/13 at 3:52 pm to foshizzle
quote:
In that case, get the 30 instead. Yes, the 15 has a lower rate, but once you account for taxes the rate is lower than inflation.
What taxes are you talking about?
Posted on 1/17/13 at 4:00 pm to LAmagnolia
quote:
What taxes are you talking about?
The fact that interest paid is tax-deductible. If you are getting, say, a 2.75% note on a 15 year, then your rate of return on paying principal is 2.75% before taking taxes into account.
Because paying the higher monthly note on a 15 year means you more rapidly lose the benefit of deducting interest, the post-tax rate of return is lower than that, which brings it under 2% and therefore less than an already low rate of inflation.
ETA: By way of contrast, with a 30 year your rate is higher but your monthly note is lower, which means you lose the tax benefit less rapidly.
I've actually run the numbers on this in Excel under various inflation assumptions, this isn't just idle musing.
This post was edited on 1/17/13 at 4:03 pm
Posted on 1/17/13 at 4:06 pm to foshizzle
FWIW, this work mostly because rates are as low as they are - so low that the rate of return from paying the 15 year early is lower than inflation.
Historically (when rates were higher) the 15 could be more attractive if you had the cash flow.
Historically (when rates were higher) the 15 could be more attractive if you had the cash flow.
Posted on 1/17/13 at 4:29 pm to foshizzle
Well, let me ask you in this way - if the regular standard deduction actually (as of last year) benefits me more than itemizing, shouldn't I just focus on getting a better rate while also paying it off earlier?
This post was edited on 1/17/13 at 4:30 pm
Posted on 1/17/13 at 5:26 pm to LAmagnolia
If you will be taking the standard deduction for the next 15 years, perhaps. Even then, inflation would have to stay below 2.75% the entire time for this to be worthwhile.
Here's another way to look at it. Let's suppose you can't deduct a dime of interest. If so, your extra monthly payment (the difference between the 15 and the 30) is exactly equivalent to locking up the money in a 15 year CD at that rate of return. And that's the best possible scenario. Most people would not do this.
Here's another way to look at it. Let's suppose you can't deduct a dime of interest. If so, your extra monthly payment (the difference between the 15 and the 30) is exactly equivalent to locking up the money in a 15 year CD at that rate of return. And that's the best possible scenario. Most people would not do this.
Posted on 1/17/13 at 7:56 pm to LAmagnolia
quote:
New Penn Financial is one place I've read about that supposedly offers roughly 2.9% with no points. Anybody have any experience with them?
I refinanced my mortgage with them - went from a 15 year loan at 4.375 % to a 15 year loan at 2.875 % about 6 months ago.
No issues whatsoever with NPF - highly recommend them, plus their fees are VERY minimal.
This post was edited on 1/17/13 at 7:57 pm
Posted on 1/17/13 at 7:59 pm to foshizzle
quote:
In that case, get the 30 instead.
The one great thing that I like about a 15 year loan is that it is paid off in 15 years.
Many people talk about treating a 30 year loan like a 15, but life happens and money often gets reallocated to other "necessities."
Posted on 1/17/13 at 9:01 pm to Will Cover
quote:
life happens and money often gets reallocated to other "necessities."
Understood, but I still think investing in a 15 year CD for a 2.75% pre-tax return is not the best idea. Granted, it is better than spending it on hookers and blow.
Posted on 1/17/13 at 10:28 pm to Will Cover
quote:
I refinanced my mortgage with them - went from a 15 year loan at 4.375 % to a 15 year loan at 2.875 % about 6 months ago. No issues whatsoever with NPF - highly recommend them, plus their fees are VERY minimal.
Thanx for mentioning this. I just hope it isn't costly to get the refi without escrow.
If it's not too personal, can you give me a rough ballpark figure for the fees?
Posted on 1/18/13 at 8:11 am to LAmagnolia
Keep your 30. Pay it like a 15
Posted on 1/18/13 at 9:49 am to LAmagnolia
quote:
If it's not too personal, can you give me a rough ballpark figure for the fees?
15 year loan @ 2.875 %
Origination charge was $995.00
Homeowner's insurance @ 5 months = $91.75 per month (Ascension Parish)
Parish property taxes @ 10 months = $159.29 per month (Ascension Parish)
Government Recording Charges = $380.00
Appraisal Fee = $450.00 (paid separately)
Hope this helps.
Edit to include, I did receive a large refund check from my previous mortgage holder (believe it was from my escrow account) to help offset the "upfront" cost that I had to pay out of pocket when I refinanced.
This post was edited on 1/18/13 at 9:51 am
Posted on 1/18/13 at 11:41 am to Brian Wilson
quote:
Keep your 30. Invest the difference like a 15
FIFY
Posted on 1/18/13 at 4:52 pm to LAmagnolia
quote:It depends what you want. If you are simply trying to mathematically maximize how much money you will have 30 years from now, then refi to a 30 and invest the difference. It's not an absolute guarantee, but over the long haul you are likely to get a better rate of return on your investment than 3%.
Would doing a 15-year refi be worth it at this point?
However, if you want to pay off your house early, there is nothing wrong with that. It's what I want - because I don't want a house payment - and in 7 years (or less) I won't. And I can't wait for my first paycheck after that - my life will be simpler and I will be happier without that obligation hanging over my head. So if you are in the same boat, refi to a 15 year and you will pay less in interest, and pay your house off 5 years sooner than the 20 you are track to do right now.
Either way is fine, just figure out what you want before making a decision.
Posted on 1/18/13 at 5:16 pm to Lou
What Lou said. I think your age has a lot to do with the 15/30 choice. I went to a 15 earlier this year mainly for the time consideration. Want to have the house paid off when I retire.
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