Mortgage refinance - Which rate would you choose?

[RISP]

Hi everyone,

I'm in the process of refinancing our home mortgage and could use some advice. 4.5 years ago I went with a 5-year-fixed mortgage, which turned out to be the right choice over the 10-year-fixed. Signore Draghi has been suppressing rates all over Europe so much that I can get an even better rate now.

So the choice is between a 5-year-fixed at 0.99% vs. a 10-year-fixed at 1.41%. Both rates are crazy low, so there's no right-or-wrong here I suppose. I thought I might just go with the 10-year one, pay it off in full during that time, and forget about debt forever. However, the gap between the two rates is bigger than I expected, so maybe I should take the 5-year one and pay (slightly) less interest and more against principal, then re-assess in 2022?

Any thoughts are welcome. Of course nobody knows how interest rates will look like 5 years from now, but can it be less than 1.41%? OTOH, I said the same thing in late 2012, and they did come down even further...

[Happyras]

OK I voted for the 10 year cheap money. I just finished a similar refi in the US 10 yr 2.49%, its a no brainer. At 62, I keep our funds invested in tax advantage accounts, and deduct the interest in part on personal taxes. In ten years RMD for IRA's kick in and I have to pay it off or reinvest those funds. The 5 year option is good, but I can't imagine seeing that 10 yr rate in 5 years.

[W2R]

I voted "other", because I will never have another mortgage again in my life. I am one of those here who sincerely detests having a mortgage and just will NOT do it ever again.

To me, the question is like, "Would you rather drown in 10 feet of water or 20 feet of water?"

[Meadbh]

I voted for the 10 year fixed term at 1.41%. That is still an awesome rate, and a guarantee for 10 years is worth a lot. Because interest rates are at historical lows, the overwhelming likelihood is that they will be higher in five years than they are now.

One caveat is that if you pay off the remaking mortgage during the term, you may incur a penalty. Make sure you have all the information about that before you decide. In my opinion, with such a low rate, there is no advantage in aggressively paying down this mortgage.

[ERD50]

Quote:

Originally Posted by RISP ... Any thoughts are welcome. Of course nobody knows how interest rates will look like 5 years from now, but can it be less than 1.41%? OTOH, I said the same thing in late 2012, and they did come down even further...

I voted 1.41%, ten year. I wouldn't worry about 'what if rates are lower in 5 years' - that 'woulda, coulda, shoulda' talk will keep you from ever doing anything. Go for the 10 year, and just keep smiling.

-ERD50

[6miths]

I always went with the shortest term available (6 month or a year) or just the variable rate. My understanding was that studies suggest that that gets you the lowest cost money. In my mind it also gave me the most flexibility in paying it down or off or just getting out of it. It worked out over the time I was financing things. Everyone's situation is different in terms of income, job stability and security, chance of move, chance of cash influx, temperament, value placed on having no mortgage, investment style and knowledge, etc. It's hard to imagine that rates won't be heading up soon but we have been saying that for quite a long time it seems. Hard not to lock in what seems like a crazy low rate for the long term at this point but it's such an individual thing.

[UnrealizedPotential]

Quote:

Originally Posted by W2R I voted "other", because I will never have another mortgage again in my life. I am one of those here who sincerely detests having a mortgage and just will NOT do it ever again. To me, the question is like, "Would you rather drown in 10 feet of water or 20 feet of water?"

I agree. I can't see myself ever having a mortgage again. There are certainly advantages to owning your own home, but what a hassle it can be.

[Big_Hitter]

the average life expectancy of a mortgage is under 10 years I believe so I voted for the low 10 year rate

1.41% is a killer deal - I got a jumbo 10/1 ARM at 3% last year and I thought that was good

[euro]

Quote:

Originally Posted by W2R I voted "other", because I will never have another mortgage again in my life. I am one of those here who sincerely detests having a mortgage and just will NOT do it ever again. To me, the question is like, "Would you rather drown in 10 feet of water or 20 feet of water?"

That's funny to me (although it DOES make sense!) as I have not 1, not 2, not 3, not 4, not .... but 10 mortgages!

All rental properties, so it's part of the game, but just interesting how different some of our preferences are...

[cme4oil]

Um, I just want to know where to get a 10 year 1.41% rate...

[Meadbh]

Quote:

Originally Posted by cme4oil Um, I just want to know where to get a 10 year 1.41% rate...

The OP lives in Germany.

http://www.mondaq.com/x/489468/Finan...Mortgage+Rates

[RISP]

Consensus pick seems to be the 10-year. That's what I'll be going for. Thanks to everyone who voted and commented.

I scheduled a meeting with the bank in two weeks to set the details. Will report back then - maybe I can still negotiate 0.1% or so off.

[ERD50]

Quote:

Originally Posted by RISP Consensus pick ....

Congrats! "Consensus" is something we very rarely get around here (though others will disagree! - hah-hah).

-ERD50

[Bestwifeever]

Quote:

Originally Posted by RISP Consensus pick seems to be the 10-year. That's what I'll be going for. Thanks to everyone who voted and commented. I scheduled a meeting with the bank in two weeks to set the details. Will report back then - maybe I can still negotiate 0.1% or so off.

Mention you have friends in ER places

[Sunset]

Quote:

Originally Posted by Meadbh I voted for the 10 year fixed term at 1.41%. That is still an awesome rate, and a guarantee for 10 years is worth a lot. Because interest rates are at historical lows, the overwhelming likelihood is that they will be higher in five years than they are now. One caveat is that if you pay off the remaking mortgage during the term, you may incur a penalty. Make sure you have all the information about that before you decide. In my opinion, with such a low rate, there is no advantage in aggressively paying down this mortgage.

I voted the same.
What a killer deal, I still think back to my approx 16% around 1981, which was a killer deal since the banks were 2.5% higher.

[RISP]

Quote:

Originally Posted by Sunset What a killer deal, I still think back to my approx 16% around 1981, which was a killer deal since the banks were 2.5% higher.

Wow, that's almost unbelievable from today's perspective. But then, in '81 inflation was 10.3% (Historical Inflation Rates: 1914-2017 | US Inflation Calculator), U.S. wages rose 10% on average (https://www.ssa.gov/oact/cola/AWI.html), and you could get ~16% from treasury bonds (1981: 20-year Treasury bonds at a 15.78% yield - The Big Picture). I wonder if anyone here locked in that rate for 20 years in 1981?

[Hyper]

Other. Get it paid off asap. Not knowing your age, IMO if one still has a mortgage past 50yr, one might take another look at how one manages their $. There are a few exceptions to that and I know there are those that say they make 250% + on that mortgage $ but fact is most do not and would be in much better shape if the mortgage were paid off. Again a few exceptions but not many.

[ERD50]

Quote:

Originally Posted by Hyper ... IMO if one still has a mortgage past 50yr, one might take another look at how one manages their $. ...

Your opinion is insulting. Many on this forum have looked at the numbers, considered the emotional side of it, and made a conscious decision to keep a mortgage way past their 50's. I don't think they have any trouble managing their money, why would you?

Quote:

There are a few exceptions to that and I know there are those that say they make 250% + on that mortgage $ but fact is most do not and would be in much better shape if the mortgage were paid off. Again a few exceptions but not many.

It's a "fact" that most would be in much better shape if the mortgage were paid off? Where do you get this "fact" from?

-ERD50

[Meadbh]

Quote:

Originally Posted by Hyper Other. Get it paid off asap. Not knowing your age, IMO if one still has a mortgage past 50yr, one might take another look at how one manages their $. There are a few exceptions to that and I know there are those that say they make 250% + on that mortgage $ but fact is most do not and would be in much better shape if the mortgage were paid off. Again a few exceptions but not many.

I'm past 50, and I am proud to have three mortgages (on investment properties). Your statement is your general opinion, that's all. It's fine to have an aversion to debt, but the specifics are important. The OP's circumstances do not fit the stereotypical profile of a retiree drowning in debt, and he is operating in a very low interest rate environment.

[RobbieB]

Yeah, if I took out a quarter million of equity at 4% on my house and put it in the market last year I would have made 6% of a quarter mill or 15 grand.

That would have been a smart play.