Mortgage Refi Dilemma

We're currently at 6.125%. Refi'd in 2004 when we bought our business. Currently qualify for the "streamline" deal. Perfect credit. Underwater but barely.

Here's the dilemma: I'd LOVE to do a 15 year. Slightly higher payment, and it's been a couple months since I did the math, but I think it saves us something like $30-$40k in interest.

BUT, I'm not sure what the plan is as far as how long we're going to stay in the house. If someone offered me exactly what we owe today, I'd build the modest dream home/house I'll die in on an immodest, ridiculously low priced 50 or so acres.

So am I better off going for another 30 at 3 and whatever percent and putting the extra dough in the bank, or doing the "I'll sleep well knowing I'll be completely debt free in 15 years" deal?

Any advice?

What is the actual drop in interest rate going to 15 year.

If the 30 doesn't have a pre-payment penalty I would probably go 30 if your uncomfortable with the payment on a 15 year. You can always make extra payments, or extra large payments to bring down your mortgate.

Will you have to pay PMI with the new loan compared to todays loan?

I don't think you'll sleep any better or worse on a 15 year vs 30 year payment plan. In fact you may sleep worse on a 15 year because the payments will be higher. You could possibly look at buying points to get the interest rate on the 30 year down to the same as a 15 year and if there is overhead on the home value roll that into the loan.

Also if you are at all serious about selling in the short term don't refinance unless you know you will at least break even with the closing costs vs. interest payment PLUS the tax increase you will have due to the lower total interest. When we had our Mortgage after we re-financed there where a few years that we didn't pay enough interest for it to do us any good on taxes. Interst plus other deductions didn't exceed the standard deduction so our taxes increased some. Just part of the $$ you have to consider when calculating the costs of re-financing.

Lot of open ends here, but if it were me, I'd go with the 30 and make 2x payments.

You'll be amazed at how small the difference in payment is between 15 and 30 year. The 15 will get you a better interest rate and the total interest amortized will be much lower. The only way to answer that question is to look at the payments and see what you can swing.

I would bet that with cutting your interest in half, your new payment will be notably lower, or maybe about the same but switching to the 15-year plan.

If you just can't commit to the 15-year payment amount, take the 30 year and then pay double the principal every month. That starts out small and ramps up slowly, but if you do it from the start, you can usually pay off a 30-year loan in 20 years or so and save beaucoup capitalized interest.

I personally did the 30 year and pay more route (no penalty for early payoff). For us it saved more $$$ than doing just the straight-up 15.

nocones: It's not so much the payment that scares me (would only go up about $100/month,) it's the fact that I'd be throwing more dollars primarily at interest with no return (if we sold the house in the next few years.)

Have PMI on current mortgage. That would go away in either scenario.

EDIT: Looking at my scribbled notes from a couple months ago, there MAY be PMI on the 30 year.

Duke: Difference in payment between the 30 and 15 was right at $300/month. That's our car payment, so not an insignificant amount.

Again, the payment doesn't really scare me, but "starting over" with another 30 year as opposed to "getting 7 years ahead" is what doesn't add up in my mind.

It doesn't take 2 times the payments to get a 30 to a 15 year.

Go with the 30 but pay it like it's a 15 and then you get the faster principal accrual and you have the flexibility to drop back to the regular payment when you want to like maybe at Christmas time.

Making one extra P&I payment a year turns your 30 year loan into a 21 year loan +/- a few months. That's the basic principle behind those bi-weekly payment loans. You end up making 13 payments a year instead of 12.

Also 30 and 15 aren't your only options. Fixed rate mortgages come in 5 year increments. 5-10-15-20-30. Get a 20 year instead if you're worried about the payment.

I'd go 15, we are going to attempt it again in the spring when we've done some more renovations.

Our credit, income everything was fine, but for some reason our appraisal came in low "above avg condition house in stable neighborhood drops 10% in 2.5 years.....................whhhhhaaaaatttt?

Anyway, our current 30 year is 5.625, for 15 we were approved at 2.8%

The monthly payment different was going to be $100/month, and even putting the closing costs in the loan, in 5 years the 15 year loan would have us like $12k ahead vs the 30 year.

2.8%

Holy crap. What mortgage company?

Oh, we are currently paying a $150/month extra on the 30yr, but starting next year we will likely start paying $300-400/month extra.

poopshovel wrote:

2.8%

Holy crap. What mortgage company?

Midfirst Bank, they are a regional bank out in these parts. But I know they sell there loans afterward to BOA or similar.

carguy123 wrote: It doesn't take 2 times the payments to get a 30 to a 15 year. Go with the 30 but pay it like it's a 15 and then you get the faster principal accrual and you have the flexibility to drop back to the regular payment when you want to like maybe at Christmas time. Making one extra P&I payment a year turns your 30 year loan into a 21 year loan +/- a few months. That's the basic principle behind those bi-weekly payment loans. You end up making 13 payments a year instead of 12. Also 30 and 15 aren't your only options. Fixed rate mortgages come in 5 year increments. 5-10-15-20-30. Get a 20 year instead if you're worried about the payment.

You are the Mortgage guy, right? Was specifically looking for your input!

poopshovel wrote: nocones: It's not so much the payment that scares me (would only go up about $100/month,) it's the fact that I'd be throwing more dollars primarily at interest with no return (if we sold the house in the next few years.)

Look at the amortization schedules. You pay a lot more principle up front on the 15 year. A lot more. So while your payment may only go up $100, your equity would be increasing several times that.

Just doing some guessing and what-ifs on the numbers....

$150k, 30 @ 6.125 in 2004. If you haven't been paying ahead, you are currently putting about $240 give or take towards principle every month. So it takes 4-5 months to gain $1000 in equity.

$150k, 15 @ 3%. From Day 1, you are putting about $660 a month towards principle. So while the payment to the bank only goes up $100, the money going back into whitey's pocket increases 275% - an extra $420 a month.

DILYSI Dave wrote: Look at the amortization schedules. You pay a lot more principle up front on the 15 year. A lot more. So while your payment may only go up $100, your equity would be increasing several times that. Just doing some guessing and what-ifs on the numbers.... $150k, 30 @ 6.125 in 2004. If you haven't been paying ahead, you are currently putting about $240 give or take towards principle every month. So it takes 4-5 months to gain $1000 in equity. $150k, 15 @ 3%. From Day 1, you are putting about $660 a month towards principle. So while the payment to the bank only goes up $100, the money going back into whitey's pocket increases 275% - an extra $420 a month.

Hence why I said pay your 30 year like a 15 or a 20 or whatever you want and get the equity build up of the lower term loan. Sometimes on those "guaranteed" refis you don't have the option of switching terms. They don't want the scheduled payments going up because they are afraid that will mean you'll go delinquent on them. Sometimes they won't refi unless your payment drops a certain number of $$$.

So take what you can to get the lower rate and then pay it like you want to. It's your right.

And yes, I'm one of the mortgage guys.

Paying the 30 like a 15 get's you part of the way there, but you still have the higher rate of the longer term loan. If the 30 and the 15 were at the same rate, then I think I agree with you that paying the 30 as a 15 would effectively be equal to a 15. But the 15 always has a lower rate.

I think in this situation though, the extra flexibility is worth the higher rate.

Left-field suggestion: ask your current servicer about a modification or a "recast". Keeps your remaining term and balance, lowers rates. Faster and cheaper than a full-on refi, but very few servicers do it and it's doubtful you'd get all the way down to what they're offering on new originations. Even so, with your current rate, getting to within half a point of the lowest I've seen out there would probably be huge.

If you are already eight years into a 30-year mortgage, isn't refinancing essentially throwing away your last eight years of payments?

nderwater wrote: If you are already eight years into a 30-year mortgage, isn't refinancing essentially throwing away your last eight years of payments?

Only if you refinance for the full value of the house and take cash out of equity.

I understand he's just slightly upside down on this loan, but until he sells the house, that's just on paper. Right now, if we ignore that and assume that values will be reasonable again in the next 5-10 years, he's ahead of the game. And really, that's a function of the economy, not refinancing.

And cutting the interest rate in half gets him way ahead of any loss he'd take anyways.

DILYSI Dave wrote: Paying the 30 like a 15 get's you part of the way there, but you still have the higher rate of the longer term loan. If the 30 and the 15 were at the same rate, then I think I agree with you that paying the 30 as a 15 would effectively be equal to a 15. But the 15 always has a lower rate.

But I was presuming 1) he wouldn't like the full on 15 year payment and/or

2) since he wasn't just refinancing but using one of the programs out there he might not be able to change to a 15 year term.

A lot of people take the 30 year option rather than the full on 15 just for the flexibility. As we've seen, you never know what's going to happen.

nderwater wrote: If you are already eight years into a 30-year mortgage, isn't refinancing essentially throwing away your last eight years of payments?

It doesn't throw away the equity you've gained, but if you go back to a new 30, it does throw away the progress you've made up the amortization ladder.

You guys are good!

Poopie - take the 30 year HARP deal and run like you stole something. The 15/30 rate difference is small potatoes.

Slightly off topic but public service announcement: if you have an existing FHA loan you now get a sweetheart refi deal as well. Look into a FHA Streamline asap - some of the big banks have already come out and said that they are only going to do these for their existing customers, anticipating huge demand. Not all, but some.

Get the longest lock you can - most lender pipelines are over-flowing already and this FHA program may jam up the works.

The problem that I found with my FHA loan is that my mortgage insure goes from $50is per month to $100ish per month. I've never missed a payment in the six years that I've had the loan, never been late. Hate to get boned like that for the life of the loan.

jimbob_racing wrote: The problem that I found with my FHA loan is that my mortgage insure goes from $50is per month to $100ish per month.

New streamline rules just took effect - lower monthly MIP as well.

YMMV - not trying to sell anything here.