Low mortgage rate anyone refinancing?

[Swimalie]

One tip I have gotten from Clark Howard that I love is to be able to pay off the mortgage 7 years early. Take your monthly payment, for simplicity, let's go with $1200 a month. Divide that by 12, so $100 and add that to your payment each month (principal only). If you do this each month, you will take 7 years off the mortgage without refinancing, with out any extra fees.

 

[DisneyWitch]

Wait why are mortgages a corporate shell game?

/respectfully snipped for brevity

This is the only defense response I'm going to provide to your post. I do not want this thread to be hijacked by an argument, and you have validated to me why I don't try to help people out on this board. No matter what people say, it seems they are immediately attacked and shamed. Well done.

I'm sorry - perhaps you didn't see the part where I said "I mean no slight against anyone in the banking field". There was no need to attack me, or belittle me because of my choices. I don't know if your post was designed to insult me, or to make yourself feel better. I hope you accomplished both and you're satisfied with your actions, but I'm afraid you've made a boatload of incorrect assumptions.

Everyone has different financial goals - and I think that's wonderful. Wouldn't it be boring if we all did the same thing? I applaud the fact that your financial planner has netted you a 21% growth rate. Not all of us have such whiz bang financial gurus in our network. I certainly don't! In addition, not all of us - including the original poster - are paying 4% in mortgage interest...for some of us, it's higher. Please don't judge me by your yardstick.

As for "overextending" myself - I think you need to step back and refrain from making assumptions about my financial life, friend. Frankly, it is none of your business, just as it is none of mine to ask the original poster what his/her finances are. The fact that I was able to cut a 30 year mortgage down to 14 years should be proof that I'm financially solvent. And just to satisfy your burning curiosity: I contribute to a 401k, RothIRA and have an emergency fund that will support me for 18 months. I have an annuity and am able to make multiple "principal payments" every month, which is how I've cut my mortgage so dramatically. I am grateful for my situation, because I've been on the other side of the financial fence as well.

The point that I was making was that if a person - not necessarily me, but I suppose you felt the need to make that assumption - had to choose between saving for their retirement and paying for their home (and there are PLENTY of people who are making that decision every day...), it would have given me 1 year to totally focus on retirement. The knowledge that I wouldn't have paid my house off until I was 64 is what spurred me to make a positive change in my life. Some people do not have the luxury of being able to pay their mortgage and fund their retirement simultaneously. I don't know if you were aware of this, but we had a severe financial crash some years ago, and people are still trying to recover. A lot of people lost jobs, many lost their homes, and some are just struggling to tread water, when they were swimming strong 10 years ago.

For me, it's more important to pay off my house early. I simply do not want to be in debt. Not everyone has the same goal, and that is the way it should be. We are not all cookie cutter versions of everyone else. The original poster indicated that she wanted options for her mortgage. I just shared how I cut my mortgage balance down without refinancing. It wasn't a mandate that I expected her to do, just another option to consider. Not everyone has the resources to do what I did. My intention was to share my experience in case something I say might help the OP get closer to achieving his/her goal. I didn't share my experiences to give you an opportunity to make fun of them.

My financial journey has been difficult, and I am darned proud of where I've gotten through hard work and sincere effort. You might not agree with me, and that's ok, but there was no reason for you to belittle my choices, other than to make yourself feel superior to the rest of us.

In spite of your pearls of wisdom, I still believe that mortgages are a legitimized shell game, and I place the blame squarely on the shoulders of the banking system. This is the same banking system who had their hands out for TARP bailouts, and I for one will not become a banking apologist. Many people have lost their homes due to the unfairness of the banking system.

I have never had an expectation that someone will simply give me money to pay for a house, and I fully expect to pay interest on a loan. Interest isn't a bad thing, but excessive interest never hits the wealthy as hard as it does us regular folks. Please don't insult me by suggesting that I am of the entitlement mindset. I have worked hard for every single penny I've earned, and I don't expect handouts.

However, when I take out a loan for $150k and it ends up costing me more than $100k in additional interest over 30 years, I feel that is excessive, and it certainly wasn't something that my mortgage broker made clear to me. Let's face it, your 4% loan is not 4% on the balance of the loan. It's calculated every MONTH (divided by 12) based on the current balance. For 30 years. That is 360 months! I'd be ok if I had a 10% interest rate, but calculated as a lump sum on the full balance and added to the total. Banks would still make a profit. Fractional banking using fiat currency is nothing but a fancy word for usary. I've done my homework, and you can too, making your own decision based on the facts. You may not come to the same conclusion I do, but I humbly suggest you try to respect those whose opinions differ from yours.

In conclusion, congratulations. You've made it clear that you're better than the rest of us because you made a different decision based on your personal circumstances, and of course, there is no room for other opinions or other ways to succeed. Not everyone's goal is to make boocoodles of money - some of us just want to be secure and happy - for me, my family and friends are more important than having a bazillion dollars. Everyone has their priorities, and they should all be respected.

For the original poster - there are many options out there, from refinancing, to paying off the house, to investing. None of them are bad options. But I think we do a disservice to the OP if we say "do it this way or you're an idiot. There are no alternatives." Now, let's get back to helping the nice person who started this discussion.

 

[DisneyWitch]

Have you run the numbers on this?

Here is why I will only take out a 15 year and not a 30 year but "pay it off like it is a 15."

I can have lower payments AND save $20K by just getting the 15 year to start with.

That's kind of what I'm doing - you're right. Unfortunately, when I took out the loan initially, I couldn't afford to pay the payments of a 15 year loan. I'm not alone either - many of my compadres were also in this boat. As my career evolved and my salary increased, however, I did exactly what you said here - paid it off as if it was a 15 year (or less). Yes, I admit I'm paying a little more in interest this way, but not as much as if I was just paying the minimum payments every month!

PS - good point about the 15 year thing. If I was to do it again, I would definitely take the 15 year option!

 

[ICF]

This is the only defense response I'm going to provide to your post. I do not want this thread to be hijacked by an argument, and you have validated to me why I don't try to help people out on this board. No matter what people say, it seems they are immediately attacked and shamed. Well done.

you were not "attacked and shamed" by the poster that asked you to clarify your statement. They asked a question....and it was a legit one too, IMO.

If you read your load documents, it spells out your estimated total $ outlay over the life of the loan and is usually at the very top of a page and easy to find.

 

[ICF]

However, when I take out a loan for $150k and it ends up costing me more than $100k in additional interest over 30 years, I feel that is excessive, and it certainly wasn't something that my mortgage broker made clear to me. Let's face it, your 4% loan is not 4% on the balance of the loan. It's calculated every MONTH (divided by 12) based on the current balance. For 30 years. That is 360 months! I'd be ok if I had a 10% interest rate, but calculated as a lump sum on the full balance and added to the total. Banks would still make a profit. Fractional banking using fiat currency is nothing but a fancy word for usary. I've done my homework, and you can too, making your own decision based on the facts. You may not come to the same conclusion I do, but I humbly suggest you try to respect those whose opinions differ from yours.

....so if I understand correctly....you want (or thought) that the $150K loan at 10% would charge you a total of $15K in interest over 30 years?? That would make the bank all of $500 a year, and with inflation and the like in 30 years that $500 is going to be worth far less.

No loans via a bank/credit union works that way. Even a car loan at $20K @ 5 % is going to charges you 1/12th of the interest % (0.416%) x the principal remaining of the original $20K.

 

[chalee94]

However, when I take out a loan for $150k and it ends up costing me more than $100k in additional interest over 30 years, I feel that is excessive, and it certainly wasn't something that my mortgage broker made clear to me.

it's been clear in the loan documents for decades. it's not the mortgage broker's responsibility to tell you how much house you can afford. that was your personal responsibility to figure out.

if you don't want to pay a mortgage loan, you still have the option to rent.

playing the victim isn't a great strategy.

 

[DawnM]

I can understand that, and our first few mortgages were 30 year loans. We were younger AND we lived in Southern California. Houses were more expensive and we really weren't in the mindset to care.

It has been in the last 10 years that we have gotten more serious about finances.

We don't want to ever have a 30 year loan again. Our loan officer kept trying to get us to take out a higher loan. It was nuts. I finally told him we like to do things like eating!

Dawn

That's kind of what I'm doing - you're right. Unfortunately, when I took out the loan initially, I couldn't afford to pay the payments of a 15 year loan. I'm not alone either - many of my compadres were also in this boat. As my career evolved and my salary increased, however, I did exactly what you said here - paid it off as if it was a 15 year (or less). Yes, I admit I'm paying a little more in interest this way, but not as much as if I was just paying the minimum payments every month!

PS - good point about the 15 year thing. If I was to do it again, I would definitely take the 15 year option!

 

[DawnM]

I don't think she is playing the victim, she is now paying more on her mortgage and gets it.

The way the lenders talk to you (and realtors) is annoying. They ask, "How much can you afford to pay per month?" Our response is always, "Show us the fully amortized loan and we will tell you how much interest we are willing to pay." We are definitely bottom line people. But we weren't always this way.

I get very annoyed when I see people on this board touting that they have refinanced and are now "saving XX" amount of dollars per month. 9 times out of 10, they have simply extended their loan amount and will be paying MORE, sometimes much more, on the bottom line when all is said and done.

My point is that people do find all of this confusing. It does take time and effort to calculate it all out.

it's been clear in the loan documents for decades. it's not the mortgage broker's responsibility to tell you how much house you can afford. that was your personal responsibility to figure out.

if you don't want to pay a mortgage loan, you still have the option to rent.

playing the victim isn't a great strategy.

 

[eliza61]

This is the only defense response I'm going to provide to your post. I do not want this thread to be hijacked by an argument, and you have validated to me why I don't try to help people out on this board. No matter what people say, it seems they are immediately attacked and shamed. Well done.

I'm sorry - perhaps you didn't see the part where I said "I mean no slight against anyone in the banking field". There was no need to attack me, or belittle me because of my choices. I don't know if your post was designed to insult me, or to make yourself feel better. I hope you accomplished both and you're satisfied with your actions, but I'm afraid you've made a boatload of incorrect assumptions.

Everyone has different financial goals - and I think that's wonderful. Wouldn't it be boring if we all did the same thing? I applaud the fact that your financial planner has netted you a 21% growth rate. Not all of us have such whiz bang financial gurus in our network. I certainly don't! In addition, not all of us - including the original poster - are paying 4% in mortgage interest...for some of us, it's higher. Please don't judge me by your yardstick.

As for "overextending" myself - I think you need to step back and refrain from making assumptions about my financial life, friend. Frankly, it is none of your business, just as it is none of mine to ask the original poster what his/her finances are. The fact that I was able to cut a 30 year mortgage down to 14 years should be proof that I'm financially solvent. And just to satisfy your burning curiosity: I contribute to a 401k, RothIRA and have an emergency fund that will support me for 18 months. I have an annuity and am able to make multiple "principal payments" every month, which is how I've cut my mortgage so dramatically. I am grateful for my situation, because I've been on the other side of the financial fence as well.

The point that I was making was that if a person - not necessarily me, but I suppose you felt the need to make that assumption - had to choose between saving for their retirement and paying for their home (and there are PLENTY of people who are making that decision every day...), it would have given me 1 year to totally focus on retirement. The knowledge that I wouldn't have paid my house off until I was 64 is what spurred me to make a positive change in my life. Some people do not have the luxury of being able to pay their mortgage and fund their retirement simultaneously. I don't know if you were aware of this, but we had a severe financial crash some years ago, and people are still trying to recover. A lot of people lost jobs, many lost their homes, and some are just struggling to tread water, when they were swimming strong 10 years ago.

For me, it's more important to pay off my house early. I simply do not want to be in debt. Not everyone has the same goal, and that is the way it should be. We are not all cookie cutter versions of everyone else. The original poster indicated that she wanted options for her mortgage. I just shared how I cut my mortgage balance down without refinancing. It wasn't a mandate that I expected her to do, just another option to consider. Not everyone has the resources to do what I did. My intention was to share my experience in case something I say might help the OP get closer to achieving his/her goal. I didn't share my experiences to give you an opportunity to make fun of them.

My financial journey has been difficult, and I am darned proud of where I've gotten through hard work and sincere effort. You might not agree with me, and that's ok, but there was no reason for you to belittle my choices, other than to make yourself feel superior to the rest of us.

In spite of your pearls of wisdom, I still believe that mortgages are a legitimized shell game, and I place the blame squarely on the shoulders of the banking system. This is the same banking system who had their hands out for TARP bailouts, and I for one will not become a banking apologist. Many people have lost their homes due to the unfairness of the banking system.

I have never had an expectation that someone will simply give me money to pay for a house, and I fully expect to pay interest on a loan. Interest isn't a bad thing, but excessive interest never hits the wealthy as hard as it does us regular folks. Please don't insult me by suggesting that I am of the entitlement mindset. I have worked hard for every single penny I've earned, and I don't expect handouts.

However, when I take out a loan for $150k and it ends up costing me more than $100k in additional interest over 30 years, I feel that is excessive, and it certainly wasn't something that my mortgage broker made clear to me. Let's face it, your 4% loan is not 4% on the balance of the loan. It's calculated every MONTH (divided by 12) based on the current balance. For 30 years. That is 360 months! I'd be ok if I had a 10% interest rate, but calculated as a lump sum on the full balance and added to the total. Banks would still make a profit. Fractional banking using fiat currency is nothing but a fancy word for usary. I've done my homework, and you can too, making your own decision based on the facts. You may not come to the same conclusion I do, but I humbly suggest you try to respect those whose opinions differ from yours.

In conclusion, congratulations. You've made it clear that you're better than the rest of us because you made a different decision based on your personal circumstances, and of course, there is no room for other opinions or other ways to succeed. Not everyone's goal is to make boocoodles of money - some of us just want to be secure and happy - for me, my family and friends are more important than having a bazillion dollars. Everyone has their priorities, and they should all be respected.


Ok I;m totally lost on this comment.

For the original poster - there are many options out there, from refinancing, to paying off the house, to investing. None of them are bad options. But I think we do a disservice to the OP if we say "do it this way or you're an idiot. There are no alternatives." Now, let's get back to helping the nice person who started this discussion.

I apologize disneywitch, I wasn't asking you to defend yourself. I was seriously asking a question as to why you called mortgages "coporate shell games". I'm not a mortgage person, I'm a scientist, about as far from a business guru as you can get.

I still don't understand why mortgages are a "shell game". IMO that implies as situation in which the consumer does not win?


I never once said your decision was bad and I've never ever called anyone an idiot nor would I.



You also said that if you kept a 30 year mortgage you would only have 1 year to save. Once again I was simply asking why you only had 1 year to save for retirement?

I totally apologize for asking these questions. I thought my original post said I may have been reading it wrong.

As you said I offered op, an alternative view point which is also very help.

Now one thing I totally admit and have always admitted on this forum since I've been posting is that my goal is not limited to be mortgage free. I realize that this is counter intuitive to most folks. But I find it interesting that if a person says they want to be mortgage free that's wonderful and they are applauded but if a person says they want to be rich, oh well that's horrible? Not only here but in society in general.

I never equated money with happiness but I'm honest. there are 100's of wonderful experiences out there that I want to have, that I want my children and grandchildren to have and yes, unfortunately they cost money. So yes, my goal is to be more than "comfortable". I'm willing to work hard for it and sacrifice for it so I don't think it's a bad goal.

So yes, I will get back to the op, since I still can't figure out why mortgages are a coporate shell game.
My apologies again if my questions "shamed or insulted you". I have edited the post

 

[GrnMtnMan]

he op, since I still can't figure out why mortgages are a coporate shell game.

I think some of the guru like/philosophy based financial advisers pander a bit too much to people who haven't been exposed to monetary or financial theory*. I think most people are capable of understanding *why* interest exists, what it really is, and that borrowing money is not an intrinsically bad thing.

But these guru-advisers have to keep it overly simple to keep people's attention, and blaming a boogeyman (banks, wall street) is an easy target.

To Disneywitch:
Why do you pay 3X more than the home price over the life of the mortgage? Because if you are buying with a mortgage, you didn't have enough money to buy that home with cash. No two ways about it.

One way to think of it is that when you bought your home, you only bought 20% (down payment) of it. The other 80% (mortgage amount), you are borrowing from somebody else, so they are due rent on that portion of the house. The mortgage is your agreement schedule, to slowly buy more and more of the house from the person/bank that lent you the money (principle), and pay them rent for using their part of the house (interest). That's why the composition your payment transitions from mostly interest in the beginning, to mostly principle toward the end.

This is the fundamental explanation of the mortgage, and it is a basic premise of how the world of money works today.

Call this transaction a shell game makes us think you think the transaction was unfair. Is it fair for you to live in a much nicer house than you could have otherwise afforded (if you had not borrowed money to buy a home)?

*Why should a school teacher or computer scientist care about financial theory? Because one thing we all have in common is money, and unless you inherit a paid off home or enough cash to buy a home, you'll be borrowing for housing (by getting a mortgage or renting a housing from somebody else).

 

[eliza61]

I think some of the guru like/philosophy based financial advisers pander a bit too much to people who haven't been exposed to monetary or financial theory*. I think most people are capable of understanding *why* interest exists, what it really is, and that borrowing money is not an intrinsically bad thing.

But these guru-advisers have to keep it overly simple to keep people's attention, and blaming a boogeyman (banks, wall street) is an easy target.

To Disneywitch:
Why do you pay 3X more than the home price over the life of the mortgage? Because if you are buying with a mortgage, you didn't have enough money to buy that home with cash. No two ways about it.

One way to think of it is that when you bought your home, you only bought 20% (down payment) of it. The other 80% (mortgage amount), you are borrowing from somebody else, so they are due rent on that portion of the house. The mortgage is your agreement schedule, to slowly buy more and more of the house from the person/bank that lent you the money (principle), and pay them rent for using their part of the house (interest). That's why the composition your payment transitions from mostly interest in the beginning, to mostly principle toward the end.

This is the fundamental explanation of the mortgage, and it is a basic premise of how the world of money works today.

Call this transaction a shell game makes us think you think the transaction was unfair. Is it fair for you to live in a much nicer house than you could have otherwise afforded (if you had not borrowed money to buy a home)?

*Why should a school teacher or computer scientist care about financial theory? Because one thing we all have in common is money, and unless you inherit a paid off home or enough cash to buy a home, you'll be borrowing for housing (by getting a mortgage or renting a housing from somebody else).

Run, grnmtnman, run!!!

 

[supersnoop]

However, when I take out a loan for $150k and it ends up costing me more than $100k in additional interest over 30 years, I feel that is excessive, and it certainly wasn't something that my mortgage broker made clear to me. Let's face it, your 4% loan is not 4% on the balance of the loan. It's calculated every MONTH (divided by 12) based on the current balance. For 30 years. That is 360 months! I'd be ok if I had a 10% interest rate, but calculated as a lump sum on the full balance and added to the total. Banks would still make a profit. Fractional banking using fiat currency is nothing but a fancy word for usary. I've done my homework, and you can too, making your own decision based on the facts. You may not come to the same conclusion I do, but I humbly suggest you try to respect those whose opinions differ from yours.

You obviously missed a key word in your mortgage documents. APR. Annual percentage rate. You pay 4% per year.

On a $150,000, you pay $6,000 in interest the first year. Some of your payment will go to the principal. In the second year, you'll only pay interest on the loan amount still outstanding. With a fixed payment, as time goes by, the amount paid towards interest decreases as principal increases. If you make one additional $1,000 principal payment will reduce the total interest by $2,200 over 30 years.

Your example of a 10% total interest rate works out to 0.65% annualized. With inflation between 1-4%, anyone loaning money at that rate is losing money.

 

[danygirl]

I think they explained it...but folks tend to focus on the monthlies. And no one made you take that mortgage, you made a choice

 

[dreamin_disney]

oh boy. I didn't mean for this to happen. I appreciate everyone's tips and advice.

 

[amcnj]

That's kind of what I'm doing - you're right. Unfortunately, when I took out the loan initially, I couldn't afford to pay the payments of a 15 year loan. I'm not alone either - many of my compadres were also in this boat. As my career evolved and my salary increased, however, I did exactly what you said here - paid it off as if it was a 15 year (or less). Yes, I admit I'm paying a little more in interest this way, but not as much as if I was just paying the minimum payments every month!

PS - good point about the 15 year thing. If I was to do it again, I would definitely take the 15 year option!

The 30 year option also gives you some flexibility down the road should your circumstances change and the ability to switch back to not sending any extra might make a difference.