You initial question asked about refinancing to a HIGHER rate. You deserve every comment on here

terradactylexpress said:

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You initial question asked about refinancing to a HIGHER rate. You deserve every comment on here

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Then explain why that is a bad idea. This is a board for financial discussion and advice. If you're going to give someone a hard time for asking a poor question, at least do it while explaining why, and give some advice on what you might do instead.

Sounds to me like OPs realtor buddy waved the total interest paid numbers on the 15 vs. The 30 in front of him to try to drum up some refi business. We can all get a little confused sometimes when people start throwing numbers at us. Thankfully OP's BS meter went off enough to come here and ask, so no harm was done.

There is no such thing as good debt when you get laid off and don't have enough emergency fund.
Liquidating assets during a down turn (when most get laid off) is typically bad timing.

Having a paid for house provides additional security which has value.

BBDP said:

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There is no such thing as good debt when you get laid off and don't have enough emergency fund.
Liquidating assets during a down turn (when most get laid off) is typically bad timing.

Having a paid for house provides additional security which has value.

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And if you get laid off before the house is paid off? And now you have a larger monthly mortgage to pay for? In that scenario you're more likely to be homeless since you intentionally gave up ALL flexibility for no significant benefit. Save the difference in the monthly payment...done, there's your emergency fund. Make additional payments along the way to pay it off sooner if you prefer. Or all at once once you've saved enough to do so. But taking away your flexibility along the way for zero financial benefit is foolish at best.

BBDP said:

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There is no such thing as good debt when you get laid off and don't have enough emergency fund.
Liquidating assets during a down turn (when most get laid off) is typically bad timing.

Having a paid for house provides additional security which has value.

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This is the biggest mistake people make. Instead of saving enough emergency fund, to use your example, they pay extra on a house. Sure, in a perfect world, if bad things happened, you'd have no debt . But in the real world, being debt free doesn't buy a loaf of bread... Liquidity does. At today's interest rates.. save your cash, invest it appropriately, and you'll be far better prepared for the rough times.

BBDP said:

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There is no such thing as good debt when you get laid off and don't have enough emergency fund.
Liquidating assets during a down turn (when most get laid off) is typically bad timing.

Having a paid for house provides additional security which has value.

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There absolutely is.

For discussions' sake, let's assume the following scenario: (I rounded cents off because this is just for illustrative purposes)

$250,000 mortgage, 30 year term with a fixed rate of 4.5%
Monthly payment: $1,266

To pay it off in 15 years, you would have to pay an additional $700/mo towards the principle starting in month 1 and that will prevent you from investing that money until the mortgage is paid off.

Let's consider your example of being laid off at some point while paying your extra monthly cash towards the mortgage instead of investing it:

Laid off at 5 Year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $0
Result: not good.

Laid off at 10 year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $0
Result: not good.

At the 15 year mark:
Mortgage Payment Due: $0
Investment Account Balance: $0
Result: Could be worse, but still not great.

Mortgage paid off: Begin sending entire $1,266 + $700 that you've been paying towards the mortgage to an investment account each month from here on.

At 20 year mark:
Mortgage Payment Due: $0
Investment Account Balance: $140,000
Result: Good

At 30 year mark:
Mortgage Payment Due: $0
Investment Account Balance: $611,943
Result: Good

Now let's run the same numbers for the guy that sent that $700/mo in extra cash to an investment account earning 7% interest from day 1 instead of paying the mortgage down early:

Laid off at 5 Year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $49,837
Result: Good.

Laid off at 10 year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $119,736
Result: Good.

At the 15 year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $217,773
Result: Good.

At 20 year mark:
Mortgage Payment Due: $1,266
Investment Account Balance: $355,275
Result: Good.

At 30 year mark:
Mortgage Payment Due: $0
Investment Account Balance: $818,617
Result: Good.

Investing the extra money not only makes you better able to keep the bills paid during tough times starting much earlier in the loan term, the interest earned on the investment account more than makes up for the extra interest paid over the second half of the loan term, leaving you with an overall greater net worth by the time all is said and done.

Calculators:
https://www.bankrate.com/calculators/home-equity/additional-mortgage-payment-calculator.aspx
https://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx

where can I get 7% a year guaranteed?
please sign me up

Fyi, sp500 average 4.25% with reinvested dividends over that period.. so you picked basically the worst scenario you could, and it still did fine.

Quote:

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Lifestyle creep catches up with most people and when they see the extra money in their bank account

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That's why you never let the money hit your account.

Set up auto draft payments like it's a 15. If you get in a bind, pull back to a 20, or 25, or the full 30yr payments if you need to.

Same with HSA. 401K. IRA. Etc.

The auto draft may be the greatest invention for the passive investor. The money just goes into the account. You never touch it. Never feel it leave. No pain, all the gains.

More people would get closer to maxing their retirement accounts if they did a routine "feel test". Up the auto draft by $100. See if you feel it that next month. If you don't feel any sting, leave it alone. Try again next quarter.

BBDP said:

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You are correct......
But risk is always ignored in these scenarios but eliminating it has value.... hence we buy insurance.
If you want to ignore risk; once your home is paid off, drop your insurance an invest that too. That money you have at 7% is at risk.. what happens if it only get 3% the 1st 15 years (look at the markets between 1999-2014). Who ended up better then... I took out my 1st mortgage in 2001.

And that response was to the quote that Mortgage dept was "good" dept.
CC dept is unsecured... interest rates are horrible but they cant come and take you Taco Bell back.

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When you find yourself talking about dropping your homeowners insurance and defaulting on credit card debt you ran up on Taco Bell to support your arguments, it might be time to take a step back and reevaluate your position.

I can't believe it, but this thread is actually getting even more entertaining.