15 year mortgage? Refi question...

[Desnik]

I need some advice because I'm not sure what is the better option for us.

We have 23 years left on our mortgage which is a 30 yr fixed loan at 5.3%.

We were thinking of taking advantage of the lower rates and inquired about it through our current loan holder just to see what they offered.

We have a couple of options and I'm not sure what we should do.

1) Refinance and start over with a 30 yr loan but the rate would be around 4.3% and would save us a couple hundred dollars a month.(This isn't something we would do, it would be crazy right?)

2) Go down to a 20 year loan and save $8 per month. (the rate is the same as above)

3) Go down to a 15 year and pay around $200 MORE than we are currently paying per month. (the rate drops to under 4% not sure exactly what, DH knows the particulars and he's not here right now)

All three options have the same fees, around $2700 closing cost and small amount out of pocket for app fee, etc..

We can afford the increase per month so #3 is looking like the best option, no? Isn't paying off the mortgage sooner the best option or am I missing something?

Thanks for any help you can offer!

 

[ilovemk76]

I need some advice because I'm not sure what is the better option for us.

We have 23 years left on our mortgage which is a 30 yr fixed loan at 5.3%.

We were thinking of taking advantage of the lower rates and inquired about it through our current loan holder just to see what they offered.

We have a couple of options and I'm not sure what we should do.

1) Refinance and start over with a 30 yr loan but the rate would be around 4.3% and would save us a couple hundred dollars a month.(This isn't something we would do, it would be crazy right?)

2) Go down to a 20 year loan and save $8 per month. (the rate is the same as above)

3) Go down to a 15 year and pay around $200 MORE than we are currently paying per month. (the rate drops to under 4% not sure exactly what, DH knows the particulars and he's not here right now)

All three options have the same fees, around $2700 closing cost and small amount out of pocket for app fee, etc..

We can afford the increase per month so #3 is looking like the best option, no? Isn't paying off the mortgage sooner the best option or am I missing something?

Thanks for any help you can offer!

How long do you plan on staying in this house? Do you have to finance the $2700 plus fees? How long will it take before you recoup the $2700 and fees?

If you applied the $2700 and fees to your existing mortgage and pay an extra $200 per month, when would you actually pay off the existing loan?

 

[Desnik]

How long do you plan on staying in this house? Do you have to finance the $2700 plus fees? How long will it take before you recoup the $2700 and fees?

If you applied the $2700 and fees to your existing mortgage and pay an extra $200 per month, when would you actually pay off the existing loan?

We plan on staying in this house forever. OK, maybe not forever but definately for the next 15-20 years. I can either finance the closing cost or pay cash for it. But, I thought it would be better to leave my cash where it is and just finance the $2700 with the loan.

If I finance all the fees, and pay the extra $200 a month the existing mortgage would be paid off in 15 years. That's shaving off 8 years off my current mortgage.

I'm not sure how long it would take to recoup the fees, I have to do the math on that.

 

[rszdtrvl]

We refinanced from a 30 year mortgage with 7 years left down to a 15 year mortgage. Our payment only went up by $40/month though.

If you can swing it - do it!

The reason the rate drops is because they are not loaning the money for as long as they would with a 30 year mortgage.

 

[Gr8t Fan]

Check to see if your current lender provides a "streamlined refinance" . We had Wells Fargo and refinanced our mortgage 2x with them. The first was a traditional refinance (with closing costs) and we went from a 30 year to a 15 year. The second was a "streamlined refinance" that had NO closing costs at all and we went from a 15 year to a 10 year. Of course, that would be the best option, to refinance down to a lower rate with no closing costs.

 

[Desnik]

Check to see if your current lender provides a "streamlined refinance" . We had Wells Fargo and refinanced our mortgage 2x with them. The first was a traditional refinance (with closing costs) and we went from a 30 year to a 15 year. The second was a "streamlined refinance" that had NO closing costs at all and we went from a 15 year to a 10 year. Of course, that would be the best option, to refinance down to a lower rate with no closing costs.

We are going through our current lender, Citi Mortgage. I'll ask about the "streamlined refinance" but are you sure that isn't because it was a 10 year loan?

 

[iheartpeterpan]

How long do you plan on staying in this house? Do you have to finance the $2700 plus fees? How long will it take before you recoup the $2700 and fees?

If you applied the $2700 and fees to your existing mortgage and pay an extra $200 per month, when would you actually pay off the existing loan?

This.

The question is, if you paid $200 extra per month on your existing mortgage, you would pay off your mortgage much faster (probably in the 15 year time frame) and would have interest savings over time due to the more rapidly paid principle. Would the interest savings on the new reduced rate over those 15 years be greater than the $2,700 cost plus whatever out of pocket fees? I can't calculate that for you because I don't have all the info. It may be worthwhile for you to just pay extra on your existing mortgage every month, if you can afford it, and avoid the cost of the refi - plus providing yourself with flexibility in the event you have a month where you need that extra cash.

Your lender should be able to help you crunch those numbers.

 

[Desnik]

This.

The question is, if you paid $200 extra per month on your existing mortgage, you would pay off your mortgage much faster (probably in the 15 year time frame) and would have interest savings over time due to the more rapidly paid principle. Would the interest savings on the new reduced rate over those 15 years be greater than the $2,700 cost plus whatever out of pocket fees? I can't calculate that for you because I don't have all the info. It may be worthwhile for you to just pay extra on your existing mortgage every month, if you can afford it, and avoid the cost of the refi - plus providing yourself with flexibility in the event you have a month where you need that extra cash.

Your lender should be able to help you crunch those numbers.

Great point! Thank you! See, this is why I posted this on the DIS! You guys give great advice and bring up things I didn't think of!

Thank you all! I am sending this info to DH who is at work and calling the mortgage company to ask more questions.

 

[Desnik]

Just spoke to DH who said according to his calculations the real savings for us is the interest we would save over the whole term of the mortgage.

So, he wants to do the 15 year and he's going to ask about a "streamlined refinance" to try to get rid of or even lower the closing costs. He wants them added into the loan & doesn't want to touch our cash. He says it's a win/win for us. We'll save in the total amount of interest we pay to the bank & pay off our house in 15 years instead of the 23 years we currently have left.

We discussed making that extra payment a year instea of refinancing but that would get it down to 17 years, not 15 and the savings in interest isn't as much as it would be with that 15 year loan.

Anything else I'm missing or should be considering?

 

[Swimalie]

One other option that would save you the closing costs is to add more in to the payment you have now. Clark Howard recommends this. You take the payment you make per month and divide by 12. What evert hat figure is, you add in each month. Just by doing this you will shave 7 years off your loan without going through the refinance "hassle" and the closing costs.

So if your payment is $1200 a month - 1200/12= $120. You add in $120 each month and mark it for principle only.

 

[Gr8t Fan]

We are going through our current lender, Citi Mortgage. I'll ask about the "streamlined refinance" but are you sure that isn't because it was a 10 year loan?

It wasn't just because our term was going down, because I've seen it offered to others as well. There was a long thread here on the Budget Board not long ago and many posters were also doing a streamlined refinance. Try the "search" function to locate it.

 

[bgirl29]

What about refinancing with the 20 year mortgage and then paying the extra $200 a month. This way you are not locked into paying the extra but can benefit with the lower interest rate. I like this because it gives you more flexibility.

 

[auralia]

I would do option 2 and just pay 200$ extra toward principal every month. Then I'd your financial circumstances change you don't have to have that extra 200 every month and I'd guess you'd be paid off right around 15 years. Of course if I was certain my job was secure I would probably just do the 15

 

[ilovemk76]

Just spoke to DH who said according to his calculations the real savings for us is the interest we would save over the whole term of the mortgage.

So, he wants to do the 15 year and he's going to ask about a "streamlined refinance" to try to get rid of or even lower the closing costs. He wants them added into the loan & doesn't want to touch our cash. He says it's a win/win for us. We'll save in the total amount of interest we pay to the bank & pay off our house in 15 years instead of the 23 years we currently have left.

We discussed making that extra payment a year instea of refinancing but that would get it down to 17 years, not 15 and the savings in interest isn't as much as it would be with that 15 year loan.

Anything else I'm missing or should be considering?

Did your DH take into account putting the $2700 plus fees into the loan? If you pay the money and fees right now against your loan, how long before the current loan is paid off?

I would get the 30 year mortgage and then pay the 15 year payment. This way if you lose your job you have more options. This gives you a lower interest rate and you only pay a little more than the 15 year mortgage.

 

[Gumbo4x4]

If you're getting offers of 4.3 for a 30-year loan, you should be able to do better than that on a 20. We just closed on a 20 last week for 3.5. Our payments dropped $29/month on a $110,000 balance, and our old loan was a 25 at 4.875. We were 2.5 years into that one. I say shop around for a better 20-year deal.

 

[crispychicky]

Did your DH take into account putting the $2700 plus fees into the loan? If you pay the money and fees right now against your loan, how long before the current loan is paid off?

I would get the 30 year mortgage and then pay the 15 year payment. This way if you lose your job you have more options. This gives you a lower interest rate and you only pay a little more than the 15 year mortgage.

This exactly. I'd stick with a 30yr mortgage (probably option #1) and pay it as if it were a 15yr. This would give you lots of flexibility while still paying off your house in 15yrs.

It'd be nice to have the option of paying less on you mortgage if some unforeseen circumstances came up, like job loss, disability, you have kids and one of you wants to be a SAHM/D, one of you needs to take time off from work to care for an aging parent, etc. If any of these things happen, you could go back to paying the lower, base monthly payment of the 30yr mortgage. When things turn around, go back to paying it off as is it were a 15yr mortgage. This would give you a few hundred(~$500?) buffer in your monthly budget.

 

[iheartpeterpan]

I am a former lender, so this is from my work experience.

Your real savings would be the difference between [what your interest would be if you paid your current loan payment + $200 per month] MINUS [what your total interest would be on the new 15 year rate plus $2700 plus whatever extra out of pocket costs there were that you mentioned].

Be careful how you calculate what the reduction in your mortgage duration would be. You can't just take $200 per month for the next 15 years and subtract it to figure out. Because you will be "prepaying" principle each month going forward, you will actually be retiring that principle much more quickly than just at $200 per month rate on your current mortgage amortization. It is hard to explain, but if a 15 year amortization yields you a payment that is only $200 more, then paying the additional principle on your current mortgage (equivalent to the new payment) should get you PRETTY close to the same duration (it will be slightly longer, due to the increased interest on your current mortgage, but not a lot longer. Months.)

Any good lender should be able to crunch that number for you. It may very well be worthwhile to refinance, but I don't know how big your mortgage is, what you are paying, etc. Generally a 1%+ rate reduction is worthwhile if you plan on staying in the house long term. And it is always better/less expensive to shorten the term if you can afford it.

 

[richmond282]

So if your payment is $1200 a month - 1200/12= $120. You add in $120 each month and mark it for principle only.

Isn't 1200/12= $100 not $120?

 

[Desnik]

I think the rate on the 15 yr was 3.9% DH said this weekend he's going to shop around and see if we could do better. I'm just worried that if we do get a better rate, the fees might be more so I'm going to look out for that.

Some are mentioning job changes/security & such and if one of us has to stay home and not work. So, I'll add that I am a SAHM and DH's job is secure. (yes, anything could happen & we are prepared for that, but we aren't worried about him loosing his job)

Am I reading correctly that some are advising us to go from 23 years left on our mortgage to a 30 year???

I'm not refinancing because I need to lower my payments. I'm looking to do it to pay it off sooner and sve on interest so how would going to a 30 year loan do this?

 

[Swimalie]

Isn't 1200/12= $100 not $120?

You are right. Brain fart on my part.