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  • refi or stay current course

    I took out a 30 yr fixed mortgage in 2013 for [email protected]%. We've been paying an extra $500/mo. principal and the current payoff balance is $149,500. Should be paid off in 8 yrs. With rates for a 15 yr fixed in the 3% range would it be smart to refi? Or just wait to see if they dip to 2% or possibly lower?
    Last edited by afr; 06-22-2020, 12:30 PM.

  • #2
    they'll probably dip below 3% but probably not below 2%. I'd refi now if you find a rate that is 3% or lower

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    • #3
      If you can get a refinance with little to no out of pocket, for less interest rate, then you're extra $500 per month would go even farther. I'd at least get 1-3 quotes.
      "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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      • #4
        Currently 8 years out? No, I would not refi for 15 years. You can do the arithmetic. 8 years at your current payment rate or 15 at the new rate. Throw in the closing/settlement costs. I suspect you are ahead doing what you are doing now, but even if the two scenarios are close you would be paid off 7 years earlier. Worth it.

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        • #5
          Depends on how much free time you have. I closed our refi 2 days ago for 15 yr at 2.5% with better.com. they currently have a promotion for $2500 in statement credit if you have an American Express card. This essentially covered all closing cost with a few hundred left over.

          I think the problem you may run into is that your balance is pretty low. I think the best rates are being given to those with between $200k-500k loan amount.

          See the refinance megathread on bogleheads for more info

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          • #6
            I do have an AMEX card but can’t touch anything close to 2.5% on a 15 yr no cost note with Better.com

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            • #7
              Use the amortization table in excel and compare the total interest you’d pay at your current path versus if you refinanced and made the same payment. Obviously no one likes paying closing costs, but if you save more in total interest by refinancing than the closing costs, then you are better off. Usually it’s a couple years before you breakeven. You could even look at a 7-year ARM, which I’ve seen are becoming less competitive relative to 30 year or 15 year, but still usually gets the best rate/you can plan to pay it off before the rate resets. If you rate shop between a few lenders, then you will be able to get a better rate and/or lower closing costs.

              I think it’s great to pay down debt faster, but if you look at the bigger picture/long-term, I’d gladly pay 3% interest and invest the extra $500/mo in the stock market to earn more than the 3% interest you are paying. If you’re closer to retirement though, sometimes it is just a good feeling to be debt free and that would trump the better returns you could earn by investing the extra payments you’re currently making.
              Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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              • #8
                Originally posted by afr View Post
                I do have an AMEX card but can’t touch anything close to 2.5% on a 15 yr no cost note with Better.com
                The listed rates on better.com's website are crap (above market). The trick is to get a low rate quote from a competitor to take to them. They also have a match policy where they will match the rate plus lower the closing costs by $1,000. I used a 2.5%, no points rate quote from northpointe and better was able to match the rate plus reduce closing costs by $1k. Not sure what state you are in but that makes a difference too.

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                • #9
                  I’m in PA

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                  • #10
                    Hi,
                    Still unable to find a bank willing to lend us 150k w/a no cost, 10 yr loan under 3% in PA. Our townhouse is worth approx. 350k and we're planning to sell in 7-10 yrs. We have excellent credit and a combined income over 250k. So much for all those wonderful rates I suppose.
                    Last edited by afr; 01-02-2021, 10:37 AM.

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                    • #11
                      Bump. As of now, we're down to just under 143k principal balance remaining on our current mortgage. We are planning to sell our townhome in 7 yrs. Third Federal is offering a 10 yr. [email protected]% w/$295 closing cost. But the APR is 2.83%. That I don't quite get if they are claiming only the $295 closing costs. Northpointe is offering a 15 yr. [email protected]% but the APR is 2.228% and cost me over 3 grand. Would it really be worth the costs considering our time frame?

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                      • #12
                        Originally posted by afr View Post
                        Bump. As of now, we're down to just under 143k principal balance remaining on our current mortgage. We are planning to sell our townhome in 7 yrs. Third Federal is offering a 10 yr. [email protected]% w/$295 closing cost. But the APR is 2.83%. That I don't quite get if they are claiming only the $295 closing costs. Northpointe is offering a 15 yr. [email protected]% but the APR is 2.228% and cost me over 3 grand. Would it really be worth the costs considering our time frame?
                        The way I would approach this problem, is I would say you have a $140K balance at 4% and are paying off $20K/year, so your current planned interest costs are:

                        year 1 = $5.2K
                        year 2 = $4.4K
                        year 3 = $3.6K
                        year 4 = $2.8K
                        year 5 = $2K

                        So, about $18K over 5 years, as the average balance for the calendar year goes from $130K to $50K. If it’s 3% instead of 4%, and you pay off the principal at the same rate, it would be $13.5K over 5 years. At 2.125%, it would be a smidge over $9K over 5 years, assuming you’re paying principal at the same rate. So, is it worth paying $3K today to save about $9K over 5 years? Probably.

                        That’s my back of the envelope approach. The more formal approach is to use a calculator like this https://www.mtgprofessor.com/Calcula...alculator.html

                        You can figure out how many months until you break even.

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                        • #13
                          Originally posted by afr View Post
                          Bump. As of now, we're down to just under 143k principal balance remaining on our current mortgage. We are planning to sell our townhome in 7 yrs. Third Federal is offering a 10 yr. [email protected]% w/$295 closing cost. But the APR is 2.83%. That I don't quite get if they are claiming only the $295 closing costs. Northpointe is offering a 15 yr. [email protected]% but the APR is 2.228% and cost me over 3 grand. Would it really be worth the costs considering our time frame?
                          Do it, don’t do it, probably not much difference. For what it is worth, I suspect you are not considering all the closing costs. Good to have a low interest loan with no points and no origination fees. Is that what is being offered? Then you have appraisal fees, title fees, and transfer taxes. Those are all outside the loan, and I am not sure what the Third Federal deal is actually covering. I also don’t know what your transfer taxes are in PA. In MD those costs all come out to several thousand dollars. My recommendation: start the process with your lender of choice. Get the full cost picture. Then decide. Seven years of reduced interest payments could be worth it even after taking a year or so to cover the closing costs. But you need the actual cost in front of you to decide.

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