Htown Harry
Thinks s/he gets paid by the post
- Joined
- May 13, 2007
- Messages
- 1,525
I was one of a number of ER.org members who refinanced to a PenFed no-closing-costs, 10-year, 5% HE loan back in early 2008.
http://www.early-retirement.org/forums/f28/4-99-penfed-home-equity-loan-32033.html
At the time, I believe I had about 13 years left on a 20-year conventional mortgage at a rate around 6.5%. Our payments went up from $1000/ month to about $1350, because the benefits of the lower interest rate were more than offset by the shorter term and a modest cash out to cover some college expenses for DD. The idea of moving the payoff date up by 3+ years was one of the big attractions.
Now, 3-1/2 years later, the payback has been significant. About 75% of payments are currently going toward principal reduction, and the balance owed has dropped from $128k to $90k.
I'm about to pull the trigger on another variation of the same strategy.
PenFed is now offering the same no-closing-cost deal with a 3% rate on a 5-year HE loan. (The 61-month to 10-year rate is down to 4%.) The only "gotcha" is that I will have to increase the balance by $10,000 to meet PenFed's HE loan refi requirements.
With DD out of college, I have the cash flow to easily handle another bump in monthly payments, to about $1800. For my trouble, I'll save about $7000 in total interest and move my payoff date forward from early 2018 to late 2016...all with no closing costs.
This won't work for everyone, and it may not be 100% optimal from a numbers standpoint, but the refi payback is essentially instantaneous. I'm a happy camper.
Something to think about for those who are looking to pay off a only-a-few-years-to-go mortgage before their FIRE date...
(Note that I don't have $90k in liquid, after-tax account funds available to just pay off the mortgage today. See the countless "should I pay off the mortgage?" threads for the numbers on that strategy.)
http://www.early-retirement.org/forums/f28/4-99-penfed-home-equity-loan-32033.html
At the time, I believe I had about 13 years left on a 20-year conventional mortgage at a rate around 6.5%. Our payments went up from $1000/ month to about $1350, because the benefits of the lower interest rate were more than offset by the shorter term and a modest cash out to cover some college expenses for DD. The idea of moving the payoff date up by 3+ years was one of the big attractions.
Now, 3-1/2 years later, the payback has been significant. About 75% of payments are currently going toward principal reduction, and the balance owed has dropped from $128k to $90k.
I'm about to pull the trigger on another variation of the same strategy.
PenFed is now offering the same no-closing-cost deal with a 3% rate on a 5-year HE loan. (The 61-month to 10-year rate is down to 4%.) The only "gotcha" is that I will have to increase the balance by $10,000 to meet PenFed's HE loan refi requirements.
With DD out of college, I have the cash flow to easily handle another bump in monthly payments, to about $1800. For my trouble, I'll save about $7000 in total interest and move my payoff date forward from early 2018 to late 2016...all with no closing costs.
This won't work for everyone, and it may not be 100% optimal from a numbers standpoint, but the refi payback is essentially instantaneous. I'm a happy camper.
Something to think about for those who are looking to pay off a only-a-few-years-to-go mortgage before their FIRE date...
(Note that I don't have $90k in liquid, after-tax account funds available to just pay off the mortgage today. See the countless "should I pay off the mortgage?" threads for the numbers on that strategy.)