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Refinance at this age?
Old 10-15-2010, 09:57 AM   #1
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Refinance at this age?

I am 60, been retired 4 years. Ten years ago we bought this old farm house. We refinanced 6 years ago at 5.625% for 30 years. The question now is, should we refinance now? I don't exspect to live past 90 so the place will probably never be paid in my lifetime. But is it wise to exstend it at anywhere between 1.5 to1.75% lower. More money in our pockets month to month, closing costs to pay, How long to go in term. Is it better to sve say a smaller amount month to month and go shorter term, 20 years? Or, would it be better to go 30 years and have more money each month. We're not in need of this, could pay off mortgage but it would leave very little in 401k. Any thoughts?
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Old 10-15-2010, 10:47 AM   #2
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If it were me I would go with whatever term left me with the lowest payments, the best total deal I could find. Rates are at historic lows, your current mortgage has about 24 years remaining so opting for 30 years is small potatoes.
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Old 10-15-2010, 10:52 AM   #3
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What Brat said.
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Old 10-15-2010, 11:03 AM   #4
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Any thoughts?
Several comments.I would separate questions of the term of the loan from the yes/no question of whether to do the refinance. You can see how long it would take to get the net present value of the refinance to go positive. (Your conversion costs are a negative term and in today's dollars. Your discounted monthly cash flow savings are positive terms.

But I think this is only one way to look at it. I having a larger cash buffer is very important, it might be better to not do it. If you hope to stay in this house a long time, even until you are quite old, might be better to do it, because the reduced payments might seem very important later.

IMO, it is a strategic decsiion rather than a simple arithmetic decision. Figure out what would hurt you the most, and unless it is very unlikely, guard against that.

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Old 10-15-2010, 11:11 AM   #5
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I would say that 'it depends'.... my sister refied more to extend her payments and get a lower monthly payment than a bigger savings with a lower interest and shorter term... she was more worried about cash flow than paying off the debt (thanks to BIL taking out money on their last refi and spending it before he died)....

SOOO, if you are in 'I need more money now to live' camp, do a 30 year loan at the lower rate... if you are in the 'I want to save money' camp... then look at a 15 year loan and see how much you can save.... seems like you can save a good amount if you do that...
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Old 10-15-2010, 12:06 PM   #6
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I am 60, been retired 4 years. Ten years ago we bought this old farm house. We refinanced 6 years ago at 5.625% for 30 years. The question now is, should we refinance now? I don't exspect to live past 90 so the place will probably never be paid in my lifetime. But is it wise to exstend it at anywhere between 1.5 to1.75% lower. More money in our pockets month to month, closing costs to pay, How long to go in term. Is it better to sve say a smaller amount month to month and go shorter term, 20 years? Or, would it be better to go 30 years and have more money each month. We're not in need of this, could pay off mortgage but it would leave very little in 401k. Any thoughts?
My father-in-law took out a 30-year mortgage when he was 72 years old. The bank was happy to give it to him.

I think a refinancing decision is all about the payback. Refi costs can go for $2000-$3000 (plus points and origination fees) but every month your lower payment is saving you money. A 10-year payback may not be a good idea for younger homeowners whose median time between moves is about seven years, but it's not a problem if it's the last home you ever plan to own. If the payback is 2-3 years then I'd say it's a great deal.

I think the most competition is at 30-year mortgages. 40-year mortgages don't seem to offer the lower rates and 15-year mortgage rates may actually result in a higher payment than the old 30-year loan. The only place I've seen 20-year loan rates is on PenFed, and they may not have the best rates compared to Navy Federal or even BofA.

As for whether or not to pay off the mortgage, you could try running all of these scenarios through FIRECalc. Paying off the mortgage will lower your expenses (lower SWR) but your resulting smaller portfolio may not be as survivable. (In your case you'd also have to consider when you're starting Social Security.) A longer mortgage (higher expenses) may push the SWR boundary but having a higher portfolio balance may raise its survivability.

It doesn't make much sense to hold highly-rated bonds or low-interest CDs when you're paying a mortgage, but if you refi to 4% then I suspect that over the next 30 years we'll easily see bond indexes and long-term CDs averaging more than 4%.

Depending on your post-refi expenses and when you start SS, you could actually end up in the enviable position of having SS pay your mortgage.
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Old 10-15-2010, 12:12 PM   #7
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We plan to live in this house the rest of our lives. Although having the mortgage go back up to 30 years somewhat bothers me, I don't see much difference in paying it off when I'm 90 compared to 84. Cash flow is not a problem now but one never knows down the road.
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Old 10-15-2010, 12:24 PM   #8
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We plan to live in this house the rest of our lives. Although having the mortgage go back up to 30 years somewhat bothers me, I don't see much difference in paying it off when I'm 90 compared to 84. Cash flow is not a problem now but one never knows down the road.
I don't know the amount of your mtg but if its in the six figure range paying it off (with 401k money) will certainly put you in a higher tax bracket for that year.

Another thing to consider is if the mtg interest allows you to itemize on your federal taxes.

Basically you only have two choices, refinance, or pay it off. Staying put is a losing proposition.
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Old 10-16-2010, 10:59 AM   #9
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Done

Decided, and started refinance. Going for 30 year at 4.375% Won't have it paid off until I'm 90, but the joke will be on them if I don't live that long. Thank you all for your advice.
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Old 10-16-2010, 02:30 PM   #10
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You didn't describe enough info... But I would refi to reduce interest if I intended to hold a mortgage!

Checkout the payment for a 15, 20, and 30. Choose the one that works best.

If you want to payoff between any of those number of years... pick the larger number of years and pay a larger payment to work down the principle a little each month. You can fairly accurately set the payoff date anytime you want (assuming the terms of your mortgage let you make additional payments against the principle each month.
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Old 11-02-2010, 09:04 PM   #11
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I did a refi 4 months ago (2 months before I retired). I went from a 15 year fixed (with 14 years left on it) to a 5 year ARM. Interest rate went from 5.25 to 3.75%. I recouped all of my refi costs in 4 months.

My plan is to either move or pay of the loan when the adjustment hits (I can afford to do this). In the meantime, I'm making a yearly "investment" equal to the difference between my old and new mortgage rate every year. Its either going towards my principal or a short term CD (whichever is the best deal). This year, I payed down my mortgage.
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Old 11-02-2010, 11:09 PM   #12
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Decided, and started refinance. Going for 30 year at 4.375% Won't have it paid off until I'm 90, but the joke will be on them if I don't live that long. Thank you all for your advice.
Actually it may well be on your executor as well. Depending on how much is left a forced quick sale may well be needed. (6 month time frame). Of course you won't care, and if the executor is a bank the only issue on family might be cleaning the place out.
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Old 11-02-2010, 11:51 PM   #13
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Decided, and started refinance. Going for 30 year at 4.375% Won't have it paid off until I'm 90, but the joke will be on them if I don't live that long. Thank you all for your advice.
One good way to look at it.

In my case, what caused me to push the button was a friend saying "in 10 years I'll be mad that I didn't borrow MORE money at those rates." The odds are you'll be able to beat that rate after taxes on CDs, if nothing else. I think you made a good move.
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Old 11-03-2010, 12:31 PM   #14
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Goldman Sachs just borrowed (sold a new bond issue) at 6.125% for 50 years.

Norfolk Southern recently borrowed at 5.8% for 100 years.

We private person homeowners can borrow at 4.0% for 30 years, fixed rate.

Yup, that's right we can borrow money at a much lower rate than huge corporations. So if you had $200K in your bank account, why would you want to use that money to payoff your mortgage Instead, buy $200K worth of these bonds and collect 6% while paying 4.0%, and rake in a cool 2% annual profit.
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