WWYD- Mortgage Refi

[puffkin]

Looking at refinancing our mortgage and not sure what to do. We are planning on staying in this house long term. However, we would like to finish off the basement sooner rather than later (hopefully in the next 2-3 years) at an approximate cost of $30,000k.

Pertinent facts
Mortgage 24 yrs left, rate 5.875%, principal $130,000, pmt. $850/mo
Home Equity 3 yrs left, rate 6.99%, principal $22,000 pmt. $600/mo
We are above the 80% LTV so we should be fine there regardless of what we decide.

Option 1
Refi mortgage back out to 30 years. Free up $200 a month in cash flow to apply to home equity which knocks that out in 2 years. At that point we will have $800 extra/mo to play with (apply to mortgage, finish basement, retirement savings etc). Point is it frees up a lot of cash flow for us in 2 years time.

Option 2
Refi mortgage and home equity into one loan for 15 year term. Total payment will be about $250 less than what we currently are at a month. That $250 would go straight to savings for basement project. In 2-3 years, we would want to finish the basement and would need to take another home equity to cover the difference (probably about $15k). But long term we would build a lot more equity and pay off the house faster.

I am really stuck. We don't anticipate a huge change in income going forward. We are comfortable with our currently monthly payments but not much more. We like our house/neighborhood/schools, we just need that little extra living space to make this house work for us long-term. WWYD?

 

[rszdtrvl]

We refinanced last year from a 30 year mortgage to a 15 year mortgage. We shaved off 8 years of payments, but our payment went up $40/month.

WELL worth it though! We will have the house paid off the same year DH turns 50.

I now that a 15 year mortgage was much better for us.

Good luck with your decision!

 

[mom2princesss]

We refied to a 15 year a couple of years ago and it was the best decision! Our principle decreases so quickly that even with the awful housing market we still have equity in our home unlike most of our neighbors.

Honestly, I would refy to the 15, toss the $250 in savings and finish the basement a bit at a time as you can afford it. No need to knock it all out at once and go into debt. Spread the cost out over several years doing a little at a time and then enjoy not having that debt. That's what we did

 

[LoriKutchey]

Did you look at how much interest you would be paying out on each of the two mortgages over the life of the loan? You can figure that out on bankrate.com. I would let that be my deciding factor. I'm sure it is significantly less on the 15 year!
Good Luck, Laurie

 

[Gr8t Fan]

Without a doubt, I'd refinance to a 15 year and save the $250/month for as long as possible so that whatever home equity loan is needed for the basement remodel will be as small as possible.

 

[ilovemk76]

I would do option #2 but I would not take a home equity loan out for the basement. I would only do that when I could pay cash.

 

[arthur06]

We just refinanced in April. We went from a 30 year to a 15 year. We had an ARM that was at 8.375% and went down to 4.25%. It cut our payment by $45 per month, but it took the years off the end!

I would go with the 15 year loan.

 

[Debbie7452]

You'll always come out ahead with a shorter loan. We refied and took 10 years off our loan. We will save $175,000 and our payments went down slightly.

 

[Helene]

I see you are from PA. Here's a link to the bank we currently have our 15 yr. with http://www.unbmountcarmel.com/equityrates.html

Although you may not want to deal with this specific bank, if you can get a 15yr at a similar rate, I'd jump at it. We just refinanced last year at 4.35. It hasn't decreased a full point yet, but I keep watching it closely.

 

[Jeff_G]

I agree go with a 15 year loan save the $250 in the bank for a good emergency fund, paydown all other debt and relax 15 years from now debt free.

 

[branv]

Frankly, #1 does not sound like a good idea to me. The 6 years you've been in your house, most of your monthly payment was going to interest rather than principal. By refi'ing and adding back another 6 years onto your mortgage, you may be going down in monthly payment, but you'll be adding on another 6 years of payments and interest. You really need to follow the advice of the PP who suggested the bank rate calculator that determines the amount you'll actually be paying once you add in interest. Take a look at how much interest you'll be paying over the life of that loan PLUS how much interest you've already paid these last 6 years. It will make you cringe.

The second option is a far more sound decision financially. I know it may be hard to postpone having the extra space until you've saved some, but it's the wise thing to do. Plus, these days more than ever we have to be thinking about the unexpected happening. Always make decisions about your house with the mindset, "what if I had to sell this tomorrow?" A longer loan means longer to reduce your principal, and more likelihood to be upside down on a sale. Or less money to put into the next home. Also, can you afford to eat the home improvement loan if you are unable to sell your home at a price to pay for the upgrades? MANY homeowners are so certain their improvements will add value, but quite often they never make their money back. Some look at it as a cost worth spending to enjoy their own home, but too many others others end up financially hurting when they have to sell the home.

But, as ever, just my opinion. We just refi'd our 30 year (with 24 years remaining) down to a 15 year and dropped our interest rate by about 2%. We actually now pay about $20 more than we used to a month, but over the life of the 15 year loan we will save about $70,000 in interest and PMI costs.

 

[mombrontrent]

I would do option #2 but I would not take a home equity loan out for the basement. I would only do that when I could pay cash.

My thoughts exactly

 

[kacaju]

go with the 15 year!! We did that and I have about 6 years left to my mortgage!! It is a great feeling, we have been here in our house for 15 years now. LOVE the fact we are almost done vs. halfway done

 

[DawnM]

Go to Bankrate.com and tab the "calculator" tab and run some numbers. The amount of interest you will save on a 15 year will be quite large.

We did this about 19 months ago and now and switched to a 15 year loan. We still have a little over 13 years left if we don't pay it off sooner, but, we are saving about 175K in a simple comparison of a 30 year vs. 15 year for the same amount of money.

Take a full look at the overall picture long term. How much it will save you should be a long term picture not a month to month amount. I see people saying all the time, "I am SAVING $300/mo" but what they often mean is that their payments are $300 less.

I could refi to a 30 year and pay $800 less per month, but in the long run it will COST me over $175K.

Dawn

Looking at refinancing our mortgage and not sure what to do. We are planning on staying in this house long term. However, we would like to finish off the basement sooner rather than later (hopefully in the next 2-3 years) at an approximate cost of $30,000k.

Pertinent facts
Mortgage 24 yrs left, rate 5.875%, principal $130,000, pmt. $850/mo
Home Equity 3 yrs left, rate 6.99%, principal $22,000 pmt. $600/mo
We are above the 80% LTV so we should be fine there regardless of what we decide.

Option 1
Refi mortgage back out to 30 years. Free up $200 a month in cash flow to apply to home equity which knocks that out in 2 years. At that point we will have $800 extra/mo to play with (apply to mortgage, finish basement, retirement savings etc). Point is it frees up a lot of cash flow for us in 2 years time.

Option 2
Refi mortgage and home equity into one loan for 15 year term. Total payment will be about $250 less than what we currently are at a month. That $250 would go straight to savings for basement project. In 2-3 years, we would want to finish the basement and would need to take another home equity to cover the difference (probably about $15k). But long term we would build a lot more equity and pay off the house faster.

I am really stuck. We don't anticipate a huge change in income going forward. We are comfortable with our currently monthly payments but not much more. We like our house/neighborhood/schools, we just need that little extra living space to make this house work for us long-term. WWYD?