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I'm currently 8 years into a 30 year mortgage at 6% with 165K remaining. If my calculations are correct, refinancing to a 15 year at 4.5% will save me 80K over the life of the loan and increase my monthly payment by $160 which I can easily stomach. I'm not seeing any negatives in doing this other than committing to a slightly higher monthly payment. However, with the interest savings, it would seem that this is a no-brainer. Are there any negatives I'm not seeing here?
Personally, I think you go with the fastest payoff schedule, at the lowest interest rate that you can negotiate and handle the payment on. If you can get a lower interest rate, make the payment, and pay the loan off that much faster, I would say go for it.
The only hitch would be if the bank will ALLOW you to refinance. Do you have enough equity in the property to still be at least 20% equity after a refinance. If not, you will have to add PMI on top of your payment (unless you are already paying it). If you are upside down, they probably won't allow a refi at all.
At 8 years in, you bought before things went crazy and are most likely fine for ratios, unless your market has crashed much further than the average. I only bought 6 years ago and I'm still over the 20% I originally put in. You should be in even better shape.
Next question, to flip this on its head. Look closely at your payoff schedule and do some math. Would you be better off to just pay the additional $160/month on your current mortgage? You wouldn't have the benefit of the lower interest rate, but you also wouldn't have the expense of the refi. Which arrangement will cost you less in the end? I would guess still the refi, but it depends on the cost.
I'm currently 8 years into a 30 year mortgage at 6% with 165K remaining. If my calculations are correct, refinancing to a 15 year at 4.5% will save me 80K over the life of the loan and increase my monthly payment by $160 which I can easily stomach. I'm not seeing any negatives in doing this other than committing to a slightly higher monthly payment. However, with the interest savings, it would seem that this is a no-brainer. Are there any negatives I'm not seeing here?
The only negative is the closing costs. Those will probably run in the neighborhood of $1000 - $1500.
Frankly, I think you'll be saving MORE than $80,000 over the life of the loan, but I don't have a calculator handy so I can't say for sure.
The only negative is the 15 year term will have a higher payment. I am a fan of prepare for worse strive for best. If you refinance to a 30 year mortgage, you will have a lower payment but you can always pay it off faster. if you go with a 15 year term, you will be forced to make the higher payment each month.
Now, if you feel you can comfortably afford without any issues go the 15 year route. I would suggest that if you have any other debts like car loans, cc, student loans, than stay away from the 15 year. Anyone thinking of doing a 15 year mortgage should first be debt free of all other debts and have an emergency fund of 6 months living expenses.
The area I'm in hasn't really seen a decline in values so I'm way above 20% equity. A quick calculation reveals that by adding $160 principal a month to my current payment would only yield interest savings of 37K versus the 15 year refi interest savings of 80K.
I guess what everyone is saying is that if I can handle the extra monthly payment then I should go for it.
I am with Victor, can you get the same rate with a 30 yr?
We purchased a home that we could afford a 10 yr, BUT, what if 5 years from now we can't afford that payment?
So we did a 30 yr, which cost us an extra 1/4%, and we are making almost double payments. We should have the house paid for in 12 years(with single payments scheduled each December)...and this way if something comes up where we can't afford the extra payment, we can skip it.
I would consider the spread. What's the rate difference between 30-yr and 15-yr?
If they are similar, then you can get 30-yr loan and simulate a 15-yr mortgage and pay off in 15 years. If the spread is more than 0.5%, then go with 15-yr (if you can afford the payment).
I am with Victor, can you get the same rate with a 30 yr?
Good luck!!
Everything is up for grabs, in terms of mortgage rates. But typically, a 30-year loan carries a higher interest rate - usually somewhere near 1/2 of 1% higher. So it's possible that refinancing to another 30-year mortgage may not really net much of a financial benefit.
Today's par rate for a 30 year fixed is 4.75% and a 15 year fixed is 4.25%.
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