I frequently look at mortgage rates to see what they are and to my surprise, our local credit union had a 30 year fixed for 4% with 1.75% in points. We refinanced about 18 months ago at 4.75%.
I've been pondering if we should refinance or not. I knew rates would have to go below 4.5% in order for it to make sense, and even then it was marginal, which is why the 4% took me by surprise. In a way, I really don't want to deal with refinancing. My goal, roughly, has been to pay off all of our debt before we RE, which will hopefully happen in about 10 years. But that's not a hard goal: right now, I'd prefer to have cash in the bank, which is why we don't pay extra on any of the mortgages. We want a bigger cushion.
Yesterday, I decided to get my wife's opinion. I asked her the following question: which would you rather have, $200k with a $1k monthly payment for 30 years or no debt/no monthly payment?
I was surprised by her answer, she chose the 200k with a 1k monthly payment.
Great, right after I figured I'd let it be, my wife decides she doesn't mind the debt. Don't get me wrong, that's a good thing - I love getting the spouse's input on these matters - but now I have work to do. So now I'm going through scenarios to figure out what we should do and I thought I'd ask others to get their opinion (spouse will also be reading this thread).
We have two mortgages:
1. 30 years fixed at 4.75% with $181k balance, 342 months remaining. $965/month P&I.
2. 10 years HEL at 4.99% with $33k balance, 8 years remaining. $426/month P&I.
Total P&I is $1391.
My thinking up to this point is that we'd keep the first mortgage until it becomes bothersome, no rush to pay it off. The second mortgage would be paid off by end of 2012. We have extra money coming in that has 80% chance it will be enough to pay off this debt. If that doesn't work out, then we'd use savings for the balance.
These are the options that I'm looking at. We're considering a 30 year fixed, but I've also added the 40 year since it's available.
It's also important to note that we'll be in this house for at least another 10 years, until the kids are grown. We've already been here 13 years and odds are high that we'll never sell this house unless we have to: kids leave town, neighborhood goes bad. We are not the type of move around.
1. Refinance both loans, pay costs in loan. No hit to savings and we'd have a 220k mortgage at 4% (~6k fees/closing costs) with P&I $1050. (40 year @ 4.375% has P&I $971 - this is almost what we pay now for our current 1st mortgage!).
2. Refinance first loan and focus on paying off second mortgage by end of 2012. If we include the fees in the loan, this results in 186k at $4% with P&I $888 (40 year @ 4.375% has P&I $821).
Running through the numbers for both of these:
1. At 30 years, we'll save $3846 with 70 month payback. At 40 years, it's better to keep the existing loans (save $1416). This is assuming a 3.5% pre-tax rate on savings and 10 years in the house.
2. At 30 years, we'll save $4439 with 60 month payback. At 40 years, it's still better to keep the existing loan (save $1248).
It looks like you'd only want to do the 40 year loan if you're really focused on cash flow. It is really appealing to think that we can maintain our current mortgage expense ($971 vs. $965). But if you go this route, you also have to believe that you can beat mortgage rate over 40 years.
Based on the numbers, it seems like refinancing would be a good move. I guess my question is, do we combine both the loans or only refinance the first mortgage. It looks like refinancing only the first mortgage is a definite winner (5 year payback). Consolidating isn't too far behind (10 month difference), but I'm not sure I like the additional $162/month P&I payment.
Is there anything else that I'm missing or should take into consideration?
As a side note, the piece I always have problems with are the fees. I've included them in the loan, so we won't have to pay them directly, but I know they're still there. Instead of paying the 5k, it'd be great to reduce the principal on the second mortgage by 5k. I know we get this back with time through lower interest payments, but it still irks me. Plus, we haven't broke even on our last loan, which makes it a tad bit more frustrating. Oh well, rant over.
I've been pondering if we should refinance or not. I knew rates would have to go below 4.5% in order for it to make sense, and even then it was marginal, which is why the 4% took me by surprise. In a way, I really don't want to deal with refinancing. My goal, roughly, has been to pay off all of our debt before we RE, which will hopefully happen in about 10 years. But that's not a hard goal: right now, I'd prefer to have cash in the bank, which is why we don't pay extra on any of the mortgages. We want a bigger cushion.
Yesterday, I decided to get my wife's opinion. I asked her the following question: which would you rather have, $200k with a $1k monthly payment for 30 years or no debt/no monthly payment?
I was surprised by her answer, she chose the 200k with a 1k monthly payment.
Great, right after I figured I'd let it be, my wife decides she doesn't mind the debt. Don't get me wrong, that's a good thing - I love getting the spouse's input on these matters - but now I have work to do. So now I'm going through scenarios to figure out what we should do and I thought I'd ask others to get their opinion (spouse will also be reading this thread).
We have two mortgages:
1. 30 years fixed at 4.75% with $181k balance, 342 months remaining. $965/month P&I.
2. 10 years HEL at 4.99% with $33k balance, 8 years remaining. $426/month P&I.
Total P&I is $1391.
My thinking up to this point is that we'd keep the first mortgage until it becomes bothersome, no rush to pay it off. The second mortgage would be paid off by end of 2012. We have extra money coming in that has 80% chance it will be enough to pay off this debt. If that doesn't work out, then we'd use savings for the balance.
These are the options that I'm looking at. We're considering a 30 year fixed, but I've also added the 40 year since it's available.
It's also important to note that we'll be in this house for at least another 10 years, until the kids are grown. We've already been here 13 years and odds are high that we'll never sell this house unless we have to: kids leave town, neighborhood goes bad. We are not the type of move around.
1. Refinance both loans, pay costs in loan. No hit to savings and we'd have a 220k mortgage at 4% (~6k fees/closing costs) with P&I $1050. (40 year @ 4.375% has P&I $971 - this is almost what we pay now for our current 1st mortgage!).
2. Refinance first loan and focus on paying off second mortgage by end of 2012. If we include the fees in the loan, this results in 186k at $4% with P&I $888 (40 year @ 4.375% has P&I $821).
Running through the numbers for both of these:
1. At 30 years, we'll save $3846 with 70 month payback. At 40 years, it's better to keep the existing loans (save $1416). This is assuming a 3.5% pre-tax rate on savings and 10 years in the house.
2. At 30 years, we'll save $4439 with 60 month payback. At 40 years, it's still better to keep the existing loan (save $1248).
It looks like you'd only want to do the 40 year loan if you're really focused on cash flow. It is really appealing to think that we can maintain our current mortgage expense ($971 vs. $965). But if you go this route, you also have to believe that you can beat mortgage rate over 40 years.
Based on the numbers, it seems like refinancing would be a good move. I guess my question is, do we combine both the loans or only refinance the first mortgage. It looks like refinancing only the first mortgage is a definite winner (5 year payback). Consolidating isn't too far behind (10 month difference), but I'm not sure I like the additional $162/month P&I payment.
Is there anything else that I'm missing or should take into consideration?
As a side note, the piece I always have problems with are the fees. I've included them in the loan, so we won't have to pay them directly, but I know they're still there. Instead of paying the 5k, it'd be great to reduce the principal on the second mortgage by 5k. I know we get this back with time through lower interest payments, but it still irks me. Plus, we haven't broke even on our last loan, which makes it a tad bit more frustrating. Oh well, rant over.
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