Mortgage refinance (short sale, foreclosure, refinancing)

[davenj08]

With mortgage rates at historic lows, I am considering the option of refinancing my 30 yr fixed loan. I checked the rates last week and got several quotes of 4.5% fixed for 20 years. It increases my mortgage by a few hundred dollars but decreases my loan term by 10 years (I bought the house in early 2010) and would save over $130k in interest (assuming I live in this house for the full term of 20 years).

On paper it looks like a no-brainer but I'm wondering if it is worth putting even more money towards the house when I am not sure what my house will be worth 5 years from now. It would be significantly lower than what I bought it for. On the other hand, we definitely plan to live in the house for at least next 7-10 years excluding some unforeseen event.

What do you guys think? Did anyone of you refinance with lower rates/shorter term?

[mark212cpa]

If you definitely intend to stay in your home for the next 7-10 years, then, a lower rate & a shorten term may be very beneficial for you. It can save you thousands of dollars in interest.

However, just a word of caution/reminder. Always take into account any possibility/probability of either you or your spouse ever losing your job in the years to come. ( assuming your both employees) Or the stability of your business. ( if either one of you are business owners)

Why is it key? Well in the event that you shorten your term to a 20 yr. ( from a 30 yr), your monthly payment will obviously go up.(due to a shorter term) Just make sure that you would still be okay in making the NEW 20yr PAYMENT in the worse case scenario that God forbid either one of you should lose your income. ( Especially in our "NEW ECONOMY or what many of us financial professionals call the "NEW NORMAL" . There is virtually very little job security in any sector today & for many years to come)

If its still doable using one income, or if you have enough emergency savings to get by, then, go for it

I have had several cases of clients doing well in their two income household for many many years.
So they decided to take advantage of lower rates & shorter terms in order to pay off their mortgage. They mostly went with a 15 yr ( from a 30yr) while some went for a 20 yr. ( from a 30 yr)

Then, the unthinkable happened. A dramatic slowdown in economy from around 4th quarter 2007, start of massive layoffs, then, the near collapse of the economy by the 3rd quarter of 2008 & thousands of lost jobs month after month. Some have been unemployed up to this day.

So Husband or Wife gets laid off, now, they are stuck with a much larger monthy payment on a 15 yr or a 20 yr with only one income to get by. They now try to refinance to get back into a 30 yr in order to just survive & get a lower monthly payment, BUT, they No Longer qualify for a Loan because their Debt to Income ratio is over the bank limits due to having Only One Income to qualify.

I am not discouraging you nor encouraging since every family has their own financial situation.
Just giving you things to think about. In this case, the Emergency Savings you have ( to cover the mortgage if one should temporarily lose their job & needs time to seek new employment). And the security of both your positions.

Then, weight in the benefits/savings of cutting your term & savings thousands in interest.

Lastly, as an alternative, Always remember that you can pay-off our mortgage sooner by yourself. You can treat your mortgage as if its a 20 yr., a 15 yr. , even a 10 yr by PAYING MORE than your monthly 30 yr. statement is asking for. But you still have the luxury of the lowest possible monthly payment on a 30 yr term IF ever one of you should experience a job slowdown or job loss.

Hope this helps. Good luck to you

[manderly6]

Unless you are planning on a short sale or foreclosure what your house will be worth in x number of years should have no bearing on this decision.

[tahiti]

take a 30 year and pay it off like a 20 if that's your goal. that way you have the extra bucks lying around if god forbid something happens.

eta: basically what mark212cpa said, LOL.

[manderly6]

Originally Posted by tahiti

take a 30 year and pay it off like a 20 if that's your goal. that way you have the extra bucks lying around if god forbid something happens.

eta: basically what mark212cpa said, LOL.

But you do lose the benefit of the lower interest rate. Although in the grand scheme of things that may be pretty small.

[tahiti]

Originally Posted by manderly6

But you do lose the benefit of the lower interest rate. Although in the grand scheme of things that may be pretty small.

the different i imagine isn't all that much, not worth the piece of mind you get knowing you can have that extra couple hundred at your disposal in case of an emergency, IMHO. Also, considering paying off a house if generally a mistake, it's better to go for the 30 year (cue Obrero, he can explain that comment which is sure to incite much better than I).

[Obrero]

And here I am! All I am going to say is don't take a shorter mortgage when rates are this low. It's nonsensical. Stick with the 30 year OP.

Now cue a bunch of whiners who say it's better to pay off my mortgage sooner because it feels good and gives me security. blah blah blah.

[manderly6]

I guess it depends on what you would do with the money. If the choice is pay down your mortgage or spend it on hookers and booze it probably makes fiscal sense to pay down your mortgage. If you are going to invest the money then it probably makes sense to do that.

[mark212cpa]

Unfortunately, many of the financial advice from as recent as 5-10 years will no longer apply today & for many years to come.

So called "Job security" for the american workforce has virtually been eliminated for decades to come or realistically for our entire lifetime. The "New Economy" will really require workers to be flexible, and be continuously learning new skills just to keep up.

The days of lifetime solid stable jobs in fields like Nursing, Teaching, Civil Service, government Jobs, Police & Firefighters are over.

So from a purely mortgage standpoint, having the security of the lowest monthly payment ( in case of a job loss or pay reduction) may be the best option for majority of middle & upper middle class americans today.

[tahiti]

Originally Posted by Obrero

And here I am! All I am going to say is don't take a shorter mortgage when rates are this low. It's nonsensical. Stick with the 30 year OP.

Now cue a bunch of whiners who say it's better to pay off my mortgage sooner because it feels good and gives me security. blah blah blah.

as you know, i'm paying additional each month towards my mortgage, but i do it knowing full well it's not the most financially prudent avenue I can take, LOL.