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We have 20 years left on our Mortgage, and are looking at retirement in anywhere between 6-9 years. I was thinking, if we refinance back to a 30 year Mortgage to lower our payment till retirement, what would it hurt ?....our payoff wouldn't change, and we do plan on selling when we retire....it would free up some cash....am I missing something ?
It depends on your current rate versus the rate and origination fees for a new loan. If your existing rate is low, you will be better off continuing to make those payments. You also have the option of a new 15 year mortgage. That would increase your current payments but greatly accelerate your growth in equity. You need to look at the math involved for each option. You need to consider your current and future needs. You need to consider how firm you are in your future retirement planning. You need to look at your overall financial situation and goals.
How do you expect anyone else to do this for you, especially without knowing the details?
One thing to keep in mind -- You've already paid a great deal of interest on your current Mortgage. If you start a new loan, you won't be touching the Principal for a while.
If you're less than 10 years from retirement.....how much are you really going to save on this new loan ???
What is the objective of 'freeing us some cash until retirement?' Remember, things change. You could wind-up entering retirement with a 20+ year mortgage and the same outstanding balance you have now.
By doing so, in lieu of accelerating your payment schedule, you would actually cut-into the equity you would otherwise realize from the sale at retirement time ... when you might really need the money to move forward into retirement.
IMO, now is the time to be thinking about building-up your retirement war chest, not effectively starting to spend it down now.
We have 20 years left on our Mortgage, and are looking at retirement in anywhere between 6-9 years. I was thinking, if we refinance back to a 30 year Mortgage to lower our payment till retirement, what would it hurt ?....our payoff wouldn't change, and we do plan on selling when we retire....it would free up some cash....am I missing something ?
Cost to refi will be $5,000-$10,000 depending on the lender, points, etc. ad nauseum, so the lower payment has to figure in the cost of the refi when you sell in 6-9 years, and you are now amortized over thirty years from the start of the new loan, with a significant portion of the payment simply covering interest costs - so your pay off would change. Just something that needs to be accounted for in you thought process.
Second, I am assuming you are seeking to free up cash for an increased lifestyle/spending capability for the next 6-9 years. Is this the time you want to increase spending on lifestyle (and there are reasons the answer would be yes, but more frequently the answer is no)?
Finally, if you can drop the interest by a percent or more, the refi cost may be covered in reduced costs over three to five years, however, you may find that with reduced interest rates, a 15 year mortgage may cost about the same as you current mortgage, but that would give you more cash from equity in the property when you do finally sell.
One thing to keep in mind -- You've already paid a great deal of interest on your current Mortgage. If you start a new loan, you won't be touching the Principal for a while.
If you're less than 10 years from retirement.....how much are you really going to save on this new loan ???
Agreed. I investigated refinancing a few years ago when rates were even lower than today, but it worked out that I would have saved a whopping $1900 over the life of a new 15 year mortgage because of the closing costs and the new interest on the front-end. I figure I can save more -- and build equity faster -- just by paying extra on my principal every month. Refinancing works best within a 1-5 years or so of purchase because you pay most of the interest up front. If you're in the 10-15 year range from purchase, the savings are minimal, and probably beyond that, you're wasting $$$ refinancing.
Try asking this question (with financial details) on the mortgage forum. There's a couple of very knowledgeable guys over there. SmartMoney, Phxtex, JackMichigan http://www.city-data.com/forum/mortgages/
What we did was to refinance our mortgage to a 20 year loan when we had 25 years left on the old one and then refinanced to a 15 year loan when we had 16-17 years left on the 20 year mortgage. With each refinance, it upped our payments slightly while dropping the number of years we'd have to pay. Recently, I looked at another 15 year refinance with us paying the same amount as our old 15 year mortgage and it would save us around $1,500 over the life of the loan. Not worth it since closing costs would exceed it.
You want to refinance to get some money out of your house.
Is that money you didn't plan to have in retirement ?
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