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refi or sell and buy new
Old 09-14-2016, 01:08 PM   #1
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refi or sell and buy new

Sooo, refi will cost me $7250 but net me a 1/2pct cheaper rate than my current 4%. Currently paying PMI as LTV is above 80%.

Goals would be
1. free up more monthly income w/o huge financial impact to realize longer term savings
2. gain more sunlight


Option1: Refi...
Con: We don't get more sun, I have to cut tree's down and build expensive patio, pay for misquito control and addtl lawn costs to keep said area clean and bug free while still living in the northwoods to get SOME more sun, likely never enough sun with way home is on lot and the way earth rotates on axis. Backyard is north, front southern exposure which DWhates.

Con: immediate cost of $7,250 closing fees
Con: I have to educate DW on an amortization schedule to show her the savings$$
Pro: Lower int rt by .05 netting $552.36/annually
Pro: Eliminate PMI (assuming appraisal comes back with today's ++ market value) netting $15831.5625 which we would end up paying over next 6yrs until LTV at 80%
Pro: don't have to move a single box

Option2: Sell and Move into a smaller monthly payment...

Con: We pay the fees and equity hounds on the closing costs when we buy back in a sunnier home, but
Pro: DW is happy, because she is tan, because she gets more sun in her life.
Pro: We capture some equity and market gains > $104k (if we sell for our list), and somehow leverage into a smaller more affordable monthly payment
Pro: Eliminate PMI on next home since the equity capture of the sell will be large enough
Pro: could get into a better school district


at first glance, the pay to play refi with equity sharks getting $7250 looks like the best option. We pay $7250 now to net the difference of that and $15831.5625 over that 6yrs we would have been paying it...plus the extra savings on the interest rate over that six years...which means we could in the next six years, double-down and cram an extra 12033.8125 into the mortgage the first 6yrs of the term. Since our monthly payment would be $504 cheaper...we could also plan to put that towards the home on top of our already extra $500/mon we do... and in months that are tight just dial back the extra principle payments. Jeez...now that my amrtz schedule is taking shape I think I talked myself into my answer...anyone violently object?

12033.8125 = Xtra Prin from eliminating PMI over 6yrs
36266.160000024 = Xtra Prin from Lower payment over 6yrs
36,000 = Current Xtra Prin Payment

New amrtz = $1170.832951389 of extra principle a month.
in 3yrs xtra prin will increase to $1871.832951389 ($701/mon auto loans end)

I figure we can rock our cars for 6yrs without another payment...and by then we will likely be millionaires and won't need that little loan help.

EDIT: It looks like selling could still be a better long term option... I ran both the current ammortization path we are on vs this new one and it would net us $60k and 2yrs of early payoff...however, if we sell for our list at $104k net, the difference of 40k would be partly to the equity hounds and partly to our short tern rent situation. if we had zero rent expenses and we landed minimal closing costs...selling might still be the more attractive offer in terms of ROI. Granted we are buying in the same high market we are selling hmmmm.
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Old 09-14-2016, 01:26 PM   #2
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Quote:
Originally Posted by kgtest View Post
Sooo, refi will cost me $7250 but net me a 1/2pct cheaper rate than my current 4%. Currently paying PMI as LTV is above 80%.
.
.
Pro: Lower int rt by .05 netting $552.36/annually
.
.
Since our monthly payment would be $504 cheaper...we could also plan to put that towards the home on top of our already extra $500/mon we do.
I'm having a hard time following what you are doing with the refi option. $7k seems awfully expensive for a refi...
Have you looked into the option of a re-appraisal with your lender? You might have enough appreciation in the market to appraise higher than your initial loan, eliminating the PMI. But not all lenders would do this, but it is worth checking as this would cost you less than $500, but you would not get the benefit of a lower interest rate.
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Old 09-14-2016, 01:47 PM   #3
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I must say I didn't follow all your numbers very well. But it seems to me that the key question here is not financial, but is whether you and your wife (I'm assuming by you saying "she" that it's a wife despite the DH acronym which normally stands for dear husband) will be happy in your current house or if you (plural) really want to move.

If the new home eliminates the PMI and you can get the same rate as you would refi the current home to, plus it makes your wife happier and puts you in a better school district, it seems like a no-brainer to move to the new home. You have to pay the refi costs whether you refi the current or move to the new, right?
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Old 09-14-2016, 01:49 PM   #4
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Option1:
which DH hates.

...

Option2:
DH is happy.
All the rest is mere verbiage.
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Old 09-14-2016, 01:57 PM   #5
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I found it a little hard to follow too, numbers and the writing style got in the way, but keep in the mind the "other" things that come with a new house. New furniture, new window coverings, new rugs, new, new, new. Add a few grand in for that stuff too.
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Old 09-14-2016, 02:00 PM   #6
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$7k to net $550 annually? Does not seem right. It would tak 13 years to beak even.

If the appraisal comes back high enough you should be able to remove PMI without refinancing.
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Old 09-14-2016, 02:20 PM   #7
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Originally Posted by ChiliPepr View Post
$7k to net $550 annually? Does not seem right. It would tak 13 years to beak even.

If the appraisal comes back high enough you should be able to remove PMI without refinancing.
Good pt. In that case the .05pc in interest isn't really worth it. Seems like I need to get on an appraisal. Is that the bank that does that?
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 09-14-2016, 02:30 PM   #8
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I found it a little hard to follow too, numbers and the writing style got in the way, but keep in the mind the "other" things that come with a new house. New furniture, new window coverings, new rugs, new, new, new. Add a few grand in for that stuff too.
One of my pts to DW
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 09-14-2016, 11:02 PM   #9
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Could you pay a lump sum on the mortgage without refi to lower the mortgage amount owed vs the appraisal so that you are above the PMI threshold ?
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Old 09-15-2016, 03:59 AM   #10
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This appears to be about the tug of war between lifestyle preferences and saving money.

If it is more important to have the LS changes, choose the one you prefer and compare the costs to the second best choice.

If it is about saving money, reverse the process.

Of course, if DW prefers LS and you prefer $, negotiation is the order of the day.
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Old 09-15-2016, 04:36 AM   #11
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Sounds to me like you don't like the house and should move to make everyone happy.

If you do choose to refi those costs seem pretty high to me. But I agree with the comment of paying that sum against the existing mortgage and see if you can get the PMI removed, though I believe FHA doesn't allow that anymore if you have an FHA loan.


Enjoying life!
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Old 09-15-2016, 05:28 AM   #12
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All the rest is mere verbiage.
Post of the day.
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Old 09-15-2016, 10:09 AM   #13
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One more thing to consider if you go for refi is property tax. When refinancing, the lender will ask for home appraisal, if as you state the value went up, your property tax will go up as well reducing your gain from the refi.
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Old 09-15-2016, 10:27 AM   #14
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It is so hard to figure out which option would be best for you.

When it comes to retiring early, we find that for many decisions like mortgages/refinancing and age to claim SS, there are so many different "ways to skin a cat".

Personally I would tend to advise selling the house, buying one that requires a mortgage of no more than twice your annual income, pay it off ASAP so that you don't have to worry about mortgages ever again in your entire life, and save the money you would have used for your mortgage payments until you have enough to upgrade to a nicer house later on with no mortgage. That's what I did anyway and I was happy with that decision (FOR ME). It does require deferred gratification. Interestingly, while rolling her eyes my sister-in-law tells me that my brother also prefers having no mortgage at all.

But many others prefer to deal with mortgages and refinancing, so that is why I say there are many ways to skin a cat.
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Old 09-15-2016, 11:08 AM   #15
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well getting PMI removed with a re-appraisal is likely not an option...if I do that, the LTV needs to come in at 75%. Of course they would make it harder for a person...because well life is fair.

Now I see why people put down 20%.

My home's appraisal would need to top 450k. That's a stretch as we bought 2yrs ago for 377. I owe 335.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 09-15-2016, 11:16 AM   #16
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It is so hard to figure out which option would be best for you.

When it comes to retiring early, we find that for many decisions like mortgages/refinancing and age to claim SS, there are so many different "ways to skin a cat".

Personally I would tend to advise selling the house, buying one that requires a mortgage of no more than twice your annual income, pay it off ASAP so that you don't have to worry about mortgages ever again in your entire life, and save the money you would have used for your mortgage payments until you have enough to upgrade to a nicer house later on with no mortgage. That's what I did anyway and I was happy with that decision (FOR ME). It does require deferred gratification. Interestingly, while rolling her eyes my sister-in-law tells me that my brother also prefers having no mortgage at all.

But many others prefer to deal with mortgages and refinancing, so that is why I say there are many ways to skin a cat.
Thanks for the input W2R. It's tougher when the skinning needs to be mutually agreed upon hehe. DW is thinking stay put, and cram money into the mortgage bucket.

I think from the reading I've done on this forum, a lot prefer to maximize the amount of $$ going into the retirement account. The home is a nice asset...but only to the person that want's to buy it. When they say twice your annual income... I suppose that would make sense in your 20s...but at 35 likely my income won't rise as much.

If we include the whole house we're at about 155k annually so that's about a 310k limit. If we took this measurement stick two years back when we bought the home and were earning $116k, the math tells me we apparently bought a home that was about 62.5% more than we should have. Add the layoff and baby and yepp, we stretched thin a bit but still managed to avoid most fee's beyond this dang PMI.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 09-15-2016, 11:19 AM   #17
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well getting PMI removed with a re-appraisal is likely not an option...if I do that, the LTV needs to come in at 75%. Of course they would make it harder for a person...because well life is fair.

Now I see why people put down 20%.

My home's appraisal would need to top 450k. That's a stretch as we bought 2yrs ago for 377. I owe 335.
Well adding this information just blew your entire Pro/Con list to crap.
I'm curious if the directional orientation has changed in the last 2 years as you clearly state your DW doesn't like it. Did you promise her that you would make the needed outdoor improvements if you bought this house?
Switching out your home in the same location in only 2 years is not a good road to FIRE.
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Old 09-15-2016, 11:22 AM   #18
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One more thing to consider if you go for refi is property tax. When refinancing, the lender will ask for home appraisal, if as you state the value went up, your property tax will go up as well reducing your gain from the refi.
Good pt. I think taking the $$ we'd spend on either closing costs/realtor fees or the appraisal/refi fee's and just keep plugging away with extra principle payments.

I'll have to re-run the amortization and see how quickly we can get to the goal filling the principle bucket.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 09-15-2016, 11:28 AM   #19
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well getting PMI removed with a re-appraisal is likely not an option...if I do that, the LTV needs to come in at 75%. Of course they would make it harder for a person...because well life is fair.

Now I see why people put down 20%.

My home's appraisal would need to top 450k. That's a stretch as we bought 2yrs ago for 377. I owe 335.
About 3 month ago my son wanted to refinance his town home and run into very similar condition. At the time of the purchase I advised him to put 20% down, offering to lend him money (at 0% interest as long as he repays it asap). He refused and now cannot refinance it at .5% lower rate and get rid of $93 monthly PMI because the house gained over $150K in equity.
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Old 09-15-2016, 11:54 AM   #20
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My head hurts...

Simple solution:

Stay put, get DW membership at a tanning salon.
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