Having some thoughts about refinancing the house to a 15 year mortgage. The details are:
Currently have a 30 year mortgage at 3.75% (27 years left).
Contributing 15% to retirement
Have 4 months of "Emergency Fund"
Only debt is the house.
2 kids, ages 4 and 1
Have replaced: roof, A/C, half of the plumbing (remodel from previous owners) as well as 3 major renovations to improve value of home (bought the cheapest in a great neighborhood, fixing it up slowly)
This would be a house we stay in unless I took another job, so not looking at moving in the next 4-5 years.

What are the boards thoughts about refinancing to a 15 year fixed (3.9%)? My mortgage would increase 250/month, I would lose that opportunity to invest, have less liquidity. Trying to weigh the pros and cons.

UpstateAg said:

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Having some thoughts about refinancing the house to a 15 year mortgage. The details are:
Currently have a 30 year mortgage at 3.75% (27 years left).
Contributing 15% to retirement
Have 4 months of "Emergency Fund"
Only debt is the house.
2 kids, ages 4 and 1
Have replaced: roof, A/C, half of the plumbing (remodel from previous owners) as well as 3 major renovations to improve value of home (bought the cheapest in a great neighborhood, fixing it up slowly)
This would be a house we stay in unless I took another job, so not looking at moving in the next 4-5 years.

What are the boards thoughts about refinancing to a 15 year fixed (3.9%)? My mortgage would increase 250/month, I would lose that opportunity to invest, have less liquidity. Trying to weigh the pros and cons.

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Honestly, from someone that does this for a living, this sounds like a horrible idea. Why would you refinance to a shorter term with a higher interest rate. I am hoping that maybe you typed something wrong because 3.9 on the 15 year seems a bit high.....

My email is in my profile, No bs, this what I do for a living. Bott of JJ might have a better bedside manner for purchase, but when it comes to slanging coin for refis, there is no one that can touch my money.

Thought process is that I'd save more in interest not paid over the course of the loan. The rate is based off a quick search based off my location.

Would recasting be worth looking into? Especially if value has increased 25-30k?

Thanks. Had a realtor telling me recasting or even re-financing to a 15 year would save me But I couldn't figure out why paying extra Like I do already wouldn't accomplish the same thing. I have a feeling they were looking for a little kickback

Thanks. 3.9% actually was a mistake. 3.6% was what I was quoted this afternoon. And I tend to think I have my life finances in order. Paid for all of those repairs and remodels in cash without financing thanks to saving and working hard on side jobs.

You can do the comparison pretty easily yourself (I did it a few years ago when I was trying to decide whether to refi or just pay extra).

Use an online mortgage calculator that allows you to input extra payments (mortgage calculator.org has one, but there are others). Compare what you will pay in interest over the life of your existing 30 year loan paying the current payment vs what you'll pay in interest if you pay an extra $250/month for the remaining life of the loan (ie, extra $250 payment starts next month).

Your total savings would be the difference in those two numbers minus the interest you've already paid on the loan over the last three years, since that's a sunk cost.

Then go run a 15 year calculation on your current principle balance plus $2k-$4k for closing costs at 3.6% to figure that total interest to see if refinancing saves you anything more (again, account for the fact that you've already paid three years worth of interest).

Definitely an extreme example...

My dad refinanced in the 1990s from a 30 year to 15 year. Essentially, the rate he borrowed at was 18% back around late 1970s. Dropped it to 9% on a 15 year. Mortgage stayed the same and paid it off that much sooner.

Just his words and always stuck with me to this day.

UpstateAg said:

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Thanks. 3.9% actually was a mistake. 3.6% was what I was quoted this afternoon. And I tend to think I have my life finances in order. Paid for all of those repairs and remodels in cash without financing thanks to saving and working hard on side jobs.

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Being debt free/paying cash for everything should not be your only litmus test for having finances in order. In my experience, the most strapped people later in life thought this way... MAYBE No debt, but TYPICALLY significantly less in assets and net worth.

I dont think the spread is worth the loss in flexibility. We refi from 4.25 on 30 to 2.75 on a 15. Of course we sold the house and ended up with a 4.25 on a 30 a few years later.

Deats99 said:

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With a sub 4 rate and no pmi, I would tell you to find an amortization calculator, then see what you would have to add a month to make 15 years happen. It will shock you. Ran the numbers based on a balance of $250,000, if you add $575 To $1228(27 yrs 3.75%) for the monthly =$1803 pays off in 15 years.

If you refi $254,000 at 3.625% it's $1831/mo. Wow right?

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Now, do the same calculation, but instead of paying down that low interest mortgage, assign a modest growth rate of say 5% to that $575 monthly savings. After 15 years, you would have more than enough to pay off the remaining balance. But then, why would you... Keep your cash, generate the income if you must to pay it.

Focusing on debt free is the most elementary approach to wealth creation. We are coming off a likely once in a lifetime opportunity with super low interest rates.. use it to your advantage. Of course, this all assumes you have the discipline to save and invest the money and don't just spend it.

Listen to cjs. There is no reason to pay that mortgage off early. There's good debt and then there's bad debt. A mortgage with a fixed interest interest rate of about half the expected return of a well balanced investment account (which is you) is very good debt.

I would let the mortgage ride with the minimum payment and set up an automatic transfer into a well balanced investment account for the rest of the money I was planning to put towards the mortgage.

In 15 years your monthly mortgage payment is going to be comically low considering the then value of a dollar, while your investment account will be a thing of beauty and will continue to grow of its own accord from there.

I am in the spreadsheet business. The math behind this makes no sense. Lots of good points here, but I'll add one.

Refinancing almost always costs you money. That money will be rolled into the new loan. You need a substantially lower rate to help make up for those costs if your time horizon is 4-5 years.

Time to build an apples to apples spreadsheet and learn the math.

Is this a real thread?

OP do not refinance, pay extra on existing note.

Only if the land loan is a 5/1 arm where the rate decreases

UpstateAg said:

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So the ocean front property in Arizona...he was lying about that too?

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Probably legit if he's offering to throw the golden gate in free.

If you do decide to do the additional principle payment make sure you keep an eye on your balance/mortgage statement!!!

When I did additional principle payments I did them in the middle of the month HOPING this would easily and automatically go to principle only (and yes I wrote principle only payment in the memo section of my check). I had to call the mortgage company every month and ask them to credit it 100% to my principle.

I don't think it was malicious, just a result of the way the payments were processed.

UpstateAg said:

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Yeah, the responses on here are not what I expected attitude wise. If people looked, I'm not living paycheck to paycheck, I put 15% of income to retirement portfolio, I have college funds working for my kids, and I have added 40k according to an appraisal in value to my house in just renovations alone (and redoing the previous owners DIY screwups). I was asked about refinancing by a real estate agent who is an acquaintance and he acted like he was going to save me on year in interest. I ask a question, and get blasted as a financial moron.
Really, the answer is, keep your loan now with a good rate and pay it off while taking advantage of the small interest rate. I get it. I ran the numbers. I originally didn't factor in the extra costs, and I'm glad people brought them up before I went too far down this trail.
But the idea that I am financially illiterate and destitute because of one question is ridiculous.

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Fyi, Your question implied that there is a good chance that you are.

With that said, i believe pretty much every comment in here has been productive and no one said you were destitute. Rather, the responses were that it was such a basic concept, that you shouldn't have needed to ask, and it suggested financial illiteracy... Nothing from you suggested otherwise unless you count that you paid cash for improvements.

I would still ask, since you have all of those investment items in order.. If you still have more to apply, then why would you apply it to the mortgage? Hopefully, all of those things you listed are performing substantially better than paying off the mortgage would save you.