Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Should I refinance my mortgage?
Old 10-15-2019, 05:02 PM   #1
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 64
Should I refinance my mortgage?

I am wondering whether I should refinance my mortgage. Currently I have 3% 15 years and balance is 170k. I am planning to refinance it to 30 years at 3.5%. My monthly payment will be lowered from 1600/month to 800/month. This can reduce my total monthly expense from 4100 to 3300.

After mortgage refinance, my bare-bone budget can be covered by 4-5% of my investment. Should I refinance to reach FIRE quicker? My current job may end after a few months, but I think I can find a lower paid job after a few months. If my investment can cover my monthly expenses with 4-5% withdrawal, then it can reduce my stress significantly. After I get laid off, I will look for another job as soon as possible, but it gives me a peace of mind if I know 4-5% withdrawal can cover the bare bone monthly bills.

I will appreciate it if you guys can give some insights.
chasedream2002 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Should I refinance?
Old 10-15-2019, 05:07 PM   #2
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 64
Should I refinance?

I am wondering whether I should refinance my mortgage. Currently I have 3% 15 years and balance is 170k. I am planning to refinance it to 30 years at 3.5%. My monthly payment will be lowered from 1600/month to 800/month. This can reduce my total monthly expense from 4100 to 3300.

After mortgage refinance, my bare-bone budget can be covered by 4-5% of my investment. Should I refinance to reach FIRE quicker? My current job may end after a few months, but I think I can find a lower paid job after a few months. If my investment can cover my monthly expenses with 4-5% withdrawal, then it can reduce my stress significantly. After I get laid off, I will look for another job as soon as possible, but it gives me a peace of mind if I know 4-5% withdrawal can cover the bare bone monthly bills.

I will appreciate it if you guys can give some insights.
chasedream2002 is offline   Reply With Quote
Old 10-15-2019, 05:45 PM   #3
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,597
I would suggest that if you continue to pay the note at $1,500 you will have 0 mortgage cost, making it easier to afford FIRE. You will still have the taxes and insurance or escrow amount to pay. At some point, if you save more for retirement that savings will be needed once you FIRE to pay the mortgage. Seems like a wash to me.

Now if you look at this as a way to trim expenses due to projected layoff, that could be a good move.

Just one view
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 10-15-2019, 05:49 PM   #4
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 192
How many years left on the 15 year mortgage? I probably would not do that since I would want the mortgage gone. If you have say 10 years left, then you are trading 10 for 30 - not 15 for 30.
marinauser is offline   Reply With Quote
Old 10-15-2019, 05:49 PM   #5
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 64
Thank you!

The main reason is my layoff is coming soon. This week is my last week on a billable project. I am not sure whether the employer allows me to do overhead work or not. The whole department is lack of work.

If I refinance, I can trim my bare-bone monthly expense from 4100 to 3300 and my current portfolio can generate 3300 a month with a 4-5% withdrawal rate. It gives me a peace of mind while I look for another job.

Quote:
Originally Posted by RetireBy90 View Post
I would suggest that if you continue to pay the note at $1,500 you will have 0 mortgage cost, making it easier to afford FIRE. You will still have the taxes and insurance or escrow amount to pay. At some point, if you save more for retirement that savings will be needed once you FIRE to pay the mortgage. Seems like a wash to me.

Now if you look at this as a way to trim expenses due to projected layoff, that could be a good move.

Just one view
chasedream2002 is offline   Reply With Quote
Old 10-15-2019, 05:51 PM   #6
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 64
I have 10 year left on my mortgage.

My main purpose of this is to lower my monthly expense so my portfolio can sustain my bare bone monthly expense while I look for a job. It may take a few months before I can land the next job.

Quote:
Originally Posted by marinauser View Post
How many years left on the 15 year mortgage? I probably would not do that since I would want the mortgage gone. If you have say 10 years left, then you are trading 10 for 30 - not 15 for 30.
chasedream2002 is offline   Reply With Quote
Old 10-15-2019, 05:55 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 10,308
Quote:
Originally Posted by chasedream2002 View Post
... 3% 15 years and balance is 170k. I am planning to refinance it to 30 years at 3.5%. ... This can reduce my total monthly expense from 4100 to 3300. ...
I'm not sure I understand your post completely but refinancing a mortgage at a higher rate and slower amortization doesn't reduce your monthly expenses. It increases them. It does, however, reduce your monthly cash outgo by kicking the expense payments down the road and significantly increasing the total.

Find a mortgage calculator that will show you the total interest expense for each of the two mortgages. I think you will be shocked to see how much expense increase you are looking at.

(www.dinkytown.net has a lot of calculators. You can probably find one there.)
OldShooter is offline   Reply With Quote
Old 10-15-2019, 06:43 PM   #8
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 64
Yes, I understand my total payments will be higher. However, it reduces my current monthly expense, so my portfolio can sustain my expenses after refinance. It may take a few months for me to find another job, so this can give me a peace of mind when I know my core expenses can be covered by 4-5% withdrawal from my total investment.

When I locate my next job, I will pay extra into mortgage and pay it off early. However, I am not sure when I can find the next job.

Quote:
Originally Posted by OldShooter View Post
I'm not sure I understand your post completely but refinancing a mortgage at a higher rate and slower amortization doesn't reduce your monthly expenses. It increases them. It does, however, reduce your monthly cash outgo by kicking the expense payments down the road and significantly increasing the total.

Find a mortgage calculator that will show you the total interest expense for each of the two mortgages. I think you will be shocked to see how much expense increase you are looking at.

(www.dinkytown.net has a lot of calculators. You can probably find one there.)
chasedream2002 is offline   Reply With Quote
Old 10-15-2019, 07:43 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 13,184
Sounds like a short term solution to address an unemployment period, not a good solution to reach FIRE sooner.

I'd look at other ways to cut your budget.

Why are you waiting to look for a new job "as soon as possible" after getting laid off? Why not start looking now?
RunningBum is offline   Reply With Quote
Old 10-15-2019, 08:35 PM   #10
Thinks s/he gets paid by the post
CaliKid's Avatar
 
Join Date: Apr 2016
Location: Ex-Cali
Posts: 1,231
I force yourself to keep paying the bigger payments and get that baby paid off. You can always take out a reverse mortgage later.
__________________
______________________
The plan was September 1, 2022 and I am 95% there. Still working a few hours a week at the real job.
CaliKid is offline   Reply With Quote
Old 10-16-2019, 02:05 AM   #11
Recycles dryer sheets
 
Join Date: Apr 2016
Posts: 73
Like mentioned above, by moving to a 30 year, your first 10 years, you will be paying more interest than principal every month. Also, expect to pay several thousand in closing costs that will be added to your loan. You mention 4 to 5 percent withdrawal rate from your assets that you can live on now. Did you run your numbers through FIRECALC? what did that say. You are still 8ish years from getting penalty-free withdrawals from your 401k/IRA (in most cases). Do you have cash to tap now?

I think 6 months of the lower 15 year payment savings is $4800. The economy is still pretty good, likely you can find work within 6 months. I would keep the 15 year and grind through these uncertain times.
SeanPizzle is offline   Reply With Quote
Old 10-16-2019, 06:17 AM   #12
Full time employment: Posting here.
Vacation4us's Avatar
 
Join Date: Oct 2018
Posts: 530
You should have an emergency fund to help pay the bills during any lay off.

Refinancing to a 30 year loan is a horrible idea.

A short term solution leading to a 30 year problem.

How many years do you have left on your current mortgage?

Where else can you cut your budget? Can you save more now to offset your short term needs when the layoff comes?
Vacation4us is offline   Reply With Quote
Old 10-16-2019, 06:55 AM   #13
Full time employment: Posting here.
Vacation4us's Avatar
 
Join Date: Oct 2018
Posts: 530
Trading a 10 yr mortgage for a 30 yr mortgage is crazy.

What would be your withdrawal rate if you left it alone?

How about a roommate until your employed again?
Vacation4us is offline   Reply With Quote
Old 10-16-2019, 07:09 AM   #14
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 22,923
This is a case where the refinance makes sense. It improves your cash flow in a difficult situation. And the cost is an extra .5% plus any closing costs. You'll pay 4 times as much interest over the 30 years as you would over the 10 years, but you already know that.

I probably would do it and then, after I got another job, make extra principal payments to pay it off in ten years instead of 30. By my calculations, that will only cost you an extra $5k in interest over those ten years (plus any closing costs).

Will you be able to refinance if you are laid off? The bank might not do it.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 10-16-2019, 07:25 AM   #15
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 22,923
[MOD HAT ON]Nearly identical threads in two sub-forums have been merged here. Just a reminder to everyone that you should only start one thread on a topic or question. If the moderators think it is in the wrong sub-forum, we'll move it. [MOD HAT OFF]
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 10-16-2019, 07:36 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2015
Posts: 5,775
OP--
Can you get the refinance done before your layoff?
If you are being laid off, do you qualify for unemployment payments?
If you plan to find another job soon, would the UE and drawdown cover you for a few short months so you did not need to refi? That would be my first choice.
__________________
Give a Man a fish, he will eat for a day.
Teach a Man to fish, he will eat for a lifetime.
pacergal is offline   Reply With Quote
Old 10-16-2019, 07:46 AM   #17
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 9,070
How old are you? How close in financial terms are you to being able to independent (able to live off your investments - retire)? Trying to get a sense of where you are in your life.

Generally, I would say no to the refinance. You already stated that you realize that you’d be paying more in total dollars with refinancing. Not a good recipe for financial success. However, if you are over 50 and you have poor prospects for a job going forward, then monthly cash flow may be more important. The younger you are, the firmer I would be on holding tight to the current mortgage.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is offline   Reply With Quote
Old 10-16-2019, 07:47 AM   #18
Thinks s/he gets paid by the post
The Cosmic Avenger's Avatar
 
Join Date: May 2016
Location: Mid-Atlantic
Posts: 2,642
Quote:
Originally Posted by Gumby View Post
This is a case where the refinance makes sense. It improves your cash flow in a difficult situation. And the cost is an extra .5% plus any closing costs. You'll pay 4 times as much interest over the 30 years as you would over the 10 years, but you already know that.

I probably would do it and then, after I got another job, make extra principal payments to pay it off in ten years instead of 30. By my calculations, that will only cost you an extra $5k in interest over those ten years (plus any closing costs).

Will you be able to refinance if you are laid off? The bank might not do it.

I agree that obviously paying nothing extra would result in much higher interest payments, but if you are worried about being able to make the higher mortgage payments and think you will need the flexibility, go ahead and take out a longer-term mortgage, and start paying more when you can. Make it a goal to pay it off in 10 years, or even refinance to a lower-interest, shorter term mortgage later on once things stabilize for you, and then STILL pay it off in 10 years, but with less interest. That's basically what we did, although I refinanced with a really low rate ARM and paid it off before the rate changed.
__________________
-Looking to FIRE in the mid-2020s, which would be our mid-50s.
The Cosmic Avenger is offline   Reply With Quote
Old 10-16-2019, 08:14 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Jul 2013
Posts: 1,871
Quote:
Originally Posted by RunningBum View Post
Sounds like a short term solution to address an unemployment period, not a good solution to reach FIRE sooner.
+1

This is what emergency funds are for.
mrfeh is offline   Reply With Quote
Old 10-16-2019, 08:20 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2016
Posts: 8,968
I would only do what you are considering if you were thinking of being unemployed for many months (or years)

A few months of drawdown will cost much less than a higher rate for a longer time.
RobbieB is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pimp my mortgage: should I refinance under HARP? caninelover FIRE and Money 4 01-25-2012 08:57 AM
Refinance or pay off mortgage? RetiredWW FIRE and Money 3 01-21-2009 09:12 PM
Mortgage refinance closing costs? scooter260 Other topics 6 12-17-2008 05:34 AM
Trying to refinance mortgage with PenFed ExtinctBird Other topics 9 04-07-2008 03:56 PM
pay off the rental mortgage or refinance and invest the difference? WM FIRE and Money 19 02-12-2007 05:32 PM

» Quick Links

 
All times are GMT -6. The time now is 10:57 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.