another ReFi question..

[rattlsnak]

Submitted my app to get my house refinanced and have two options. Right now, we are 10 years into a 30 year mortgage. I am consolidating a equity line account into one loan with my original mortgage. Since the interest rate is 2.5% cheaper, I can get the new amount for the same exact payment I am making now, but for another 30 years, or I can go with 20 years for a few hundred more a month. The issue is, I am losing my job in a few months (getting furloughed) and although I have a few things temporarliy lined up, I dont want to commit to a higher payment right now. So if I were to opt for the 30 year rate, when things get better and I land another secure job, couldn't I just pay a few hundred more a month (principle only) on the 30 year and come out the same as I would have by getting the 20 year rate to start with? (I realize that the 20 year rate is the better way to go if I could be sure I could afford it.)

[aigel]

You should go to this website and use the appropriate mortgage calculator to run through your scenarios. The payoff calculators probably are the first place to start to see how extra payments affect the total cost / time.

http://www.mtgprofessor.com/calculators.htm


There are other things that you mention which may be more important. If you run into a phase of your life that may make it hard to pay the mortgage, of course it would not be wise to set yourself up for a bigger payment. I certainly would play it safe. The only downside is that if you have the option o to pay off faster later, will you do it? Many people do not have the discipline and have to force themselves to the higher payment with a shorter term.

G

[RANDY P]

No.

HELOC is going to be a variable rate note. If you qualify for a HELOC you should qualify for a 30 / fixed, also HELOC's have a time when they are due- a balloon if you may.

a fixed note is too cheap to ignore now. If you go back out to a 30 year note your payments should drop.

go back out to 30, have a lower payment when you need it and if you want to get back to where you were continue making the existing payment now against the new note.

[aigel]

Randy,

I don't think he is talking about a HELOC rather than rolling his two loans (previous mortgage + Heloc) into one new traditional fixed rate loan.

rattlesnak,

You just need to make sure that there are no pre-payment penalties for early pay off / additional payments. Not many loans do have these any more, but they do exist, often in the fine print.

G

[john70t]

You have substantial equity invested in the property, but a small percentage of it's debt obligation.
Interest is 3-4x the actual sale price.

Something to note:
1). The Fed has kept interest rate very low for a long time to stimulate spending(taxes).
2). Existing National Debt (with themselves "giving away" $26trillion without congressional approval) is part of that.
3). This low-interest trend will probably continue, if common sense prevails.
4). Stimulating the economy is essential, and will be.

Research the current "Discount" rate, which the Fed prints and gives to the corporate banks for free.
Research the "Federal Funds" rate, which the the banks loan to each other.

Go from there.
The banks should be very competitive......if this is truly a free-market society.

[Hugh R]

If you re-fi to another 30 you will pay more interest in the long run.

go to an on-line calculator and run your current scenario, paying off in another 20 versus starting at a new loan rate and another 30 year loan.

[fireant911]

My amortization calculator is on my other computer but you can do what you are asking. For example, a $150K loan, at 5% interest for 20 years equates to a monthly payment of $989.93. Compare this to a $150K loan, at 5% interest for 30 years requires a monthly payment of $805.23. The difference in the two monthly payments is ($989.93-$805.23) $184.70. If you finance the $150K at 5% for 30 years AND make an extra $184.70 payment to principle every month, you have essentially paid off a 30-year mortgage in 20 years. Of course, this approach takes much discipline and every month you delay starting these extra payments moves the target and will require extra money to get you back on the 20-year goal track.

My experience: we paid off our first home in 3 years and 4 months using a suped-up version this approach. We had a 15 year mortgage and included extra principle payments (doubled/tripled/qradupled payments). It works!!!

[Zeke]

You can do what you propose to do, but you won't make that extra principal payment.

[VincentVega]

If you finance the $150K at 5% for 30 years AND make an extra $184.70 payment to principle every month, you have essentially paid off a 30-year mortgage in 20 years. Of course, this approach takes much discipline and every month you delay starting these extra payments moves the target and will require extra money to get you back on the 20-year goal track.

This. Gives you flexibility. Plus, why tie up all your cash in your house? Personal choice.

[crb07]

We are locked into a 15 year refi at 2.75%, total closing cost about 5k. Bank says 2 months before we close.

[rattlsnak]

Originally Posted by fireant911

My amortization calculator is on my other computer but you can do what you are asking. For example, a $150K loan, at 5% interest for 20 years equates to a monthly payment of $989.93. Compare this to a $150K loan, at 5% interest for 30 years requires a monthly payment of $805.23. The difference in the two monthly payments is ($989.93-$805.23) $184.70. If you finance the $150K at 5% for 30 years AND make an extra $184.70 payment to principle every month, you have essentially paid off a 30-year mortgage in 20 years. Of course, this approach takes much discipline and every month you delay starting these extra payments moves the target and will require extra money to get you back on the 20-year goal track.

Thanks, thats what i was looking for...

Originally Posted by crb07

We are locked into a 15 year refi at 2.75%, total closing cost about 5k. Bank says 2 months before we close.

Care to PM me which bank this is???

Originally Posted by VincentVega

This. Gives you flexibility. Plus, why tie up all your cash in your house? Personal choice.

This is the way I'm looking at it. I obviously completely understand that if I get a longer term, then I pay back more in interest.

And yes it does take discipline to make the extra payment, thats why I have the bank do it automatically. I pay an extra $200 a month now and have been for the last 5 years so i know it can be done. I think I would prefer the flexibility as Vincent stated.. I'm going to be inbetween jobs soon and I have a son going to college this year!

[aigel]

Originally Posted by VincentVega

This. Gives you flexibility. Plus, why tie up all your cash in your house? Personal choice.

Because you need to have it paid off by the time you retire. I know many that are ready to retire (in age) but can't because they still have a mortgage. No personal choices left for those guys but continue to work!

G

[KFC911]

Originally Posted by rattlsnak

...And yes it does take discipline to make the extra payment, thats why I have the bank do it automatically. I pay an extra $200 a month now and have been for the last 5 years so i know it can be done. I think I would prefer the flexibility as Vincent stated.. I'm going to be inbetween jobs soon and I have a son going to college this year!

Excellent advice on this thread, including Milt's "warning", but you've got a great handle on things imo, and it CAN be done. Paid off my first this way (11 yrs), and though I would never tie up everything in a primary (or any) house, being debt free doesn't suck either.

[fintstone]

You can do it as already explained...although the shorter term loans typically have a slightly lower interest rate which can save you a little money.

[john70t]

Originally Posted by rattlsnak

This is the way I'm looking at it. I obviously completely understand that if I get a longer term, then I pay back more in interest.

Karl's Mortgage Calculator
I plugged in a $500K house, 10% down($450K loan), 30yr fixed, at 5%.

Total payments would be $870K on that $450K loan.
Almost 100% interest!!!!!!!!!
Guido would be proud.
My other thoughts on this would send the tread into PARF.

This is why any language in a re-fi should stipulate extra payments go to principle only, and a re-calculation of the loan should be available at least yearly.

[VincentVega]

Because you need to have it paid off by the time you retire. I know many that are ready to retire (in age) but can't because they still have a mortgage. No personal choices left for those guys but continue to work!

Cant argue with anyone financial decision, lots of choices and we own them.

I dont understand the bit about paying off a mortgage before retirement though. Why no assets or income at retirement? Maybe you have too much house? Lots of ways to run the #'s.

With rates so low I like the idea of having $$ available for investment. Add in the tax advantages and you dont need much of a return to make out in the long run. Want to pay it off when you retire? Go ahead, sell some assets. Living mortgage free sounds great, but I also dont believe in tying up my cash in one asset, even if I live there.

[VincentVega]

I plugged in a $500K house, 10% down($450K loan), 30yr fixed, at 5%.

Total payments would be $870K on that $450K loan.

Cant argue with the #'s, but you can get 3.5 or less now on that loan so 308k in interest if you pay for 30 yrs.

[aigel]

Originally Posted by VincentVega

Cant argue with anyone financial decision, lots of choices and we own them.

I dont understand the bit about paying off a mortgage before retirement though. Why no assets or income at retirement? Maybe you have too much house? Lots of ways to run the #'s.

Most people buy a house in their 30s - having that paid off in their 60s should absolutely be a goal while being diversified otherwise. What I see a lot are people that refi over and over and kick the can down the road again and again. They must imagine old age never comes?

I once bought a house and the people owed TWICE what they paid for it. LOL! Sure, it was 30 years ago and maybe they helped pay for college and other useful things, but I hate to think what they threw at interest over the course of 30 years?

Money is really cheap right now, so that may change some things. I do not like the "I can make more money in other investments". I sure hate to look at my 401k for example ...

G

[widebody911]

I refi'd a few years ago, but I've been making the same payment, with the delta going to principal.

I'm in the process of refi'ing again, but this time, instead of letting them roll the loan fees and escrow pre-pay into the loan, I'm paying those out of pocket. It dawned on me that it doesn't make sense to pay 30 years of interest on $2500. Hell, I'd be better off putting it on my credit card and paying it off; at least that way I'd get the rebate my CC offers.

When I bought my house in 2000, I was paying 7 7/8% Right now I'm paying 5%, and the new loan will be 3.5%

[fireant911]

rattlsnak,
I have my amortization calculator back. There is one more interesting point I would like to share with you (although you may already know this). The amount of principle/interest changes with each payment (the amount going to principle increases while interest decreases) - at the first payment (from the example I provided earlier), the interest you pay on the 30 year mortgage is a whopping $625.00 whereas the principle is just $180.23. By making the proposed $184.70 additional money to principle along with the first payment, you have saved yourself a whole payment already (that one payment saved you $627 in interest... that is a nice return on your investment!).

We used to even collect all of your change from around the house when it came to payment time.