Home Loan

[Suppa Hobbit Mage]

I'm looking to refinance my home. I've currently got 24 years, 8 months on my existing loan of 194k, at 5.95% interest and a $1855 monthly payment.

If I refi it to a 15 year fixed, 4.875% interest, I cut 9 years and 8 months off my loan, and raise the monthly to $2014 a month. I'd save $290k over the course of the loan in PnI and interest savings.

Or, I could refi it to a 20 year fixed, 5.375% interest, $1,678 monthly.

They are both attractive, but I really like the 20 year one better as it is just win win for me. The 15 year, while $200 bucks more a month in payment isn't a ton, worries me because of the economy, otherwise I'd do that.

Any advice from our financially crazy smart folks or realtors/loan officers?

I'll do the 20 year no matter what, it pays for itself inside like 8 months I think.

[Trouble]

You're only saving 4 years by doing the 20 refi, excluding the rate change. The reason I mention it is that with my lender (a credit union), they will allow you to "recast" the loan once during the 30 year term to the current prevailing rate. So if your rate is 6% and they are giving out 4.5 or 5% for new loans, see if they'll recast your current loan for 4.5% for the remainder of the original term. For my lender it would cost $500 to do it but you save all of the recording fees, taxes, appraisals, etc., you'd pay for a full refi. Just an idea...

[Bobmuhthol]

I might be retarded but if you have a $1855 monthly payment for 296 months and you switch over to $2014 monthly for 180 months, you don't save anything close to $290k (it's closer to $190k).

Honestly, if you have the opportunity to take 15 years at 4.875% that's so so so much better, to the tune of 5 fewer years of debt and $40k in interest not accounting for inflation and investment.

[Ker_Thwap]

Just think about the opportunity cost of that $200 a month, that is what else could you be spending it on or saving it for right now?

Do you have car loans? Could you put that $200 aside or invest it short term then pay cash for your next car, thus avoiding an expensive car loan? Would you just fritter it away on pizza delivery twice a week?

As for the economy, is your job economy driven, is your company in good financial shape, are jobs available right now in your field? If you are laid off, say in 10 years, it might be good to owe less principle, which gives you a better chance to refinance.

In short, it probably depends more on what you'd do with the extra money, than on the economy.

[DoctorUnne]

What's your equity in the house? If you can stomach the risk I would take advantage of how low mortgage rates are now and lever back up to 80% of the value of the house for as long a term as possible and use the upfront proceeds to invest in a large-cap, no load mutual fund or if you're more risk averse a high-grade corporate bond fund. As long as the return you earn on your money is higher than your mortgage interest, which it should be over the long-term, and you're comfortable making the higher monthly payment with your income, then you'll be making money on the spread between the rates.

Otherwise, go with the 20-year and lock in the low interest rate for as long as possible, and use your monthly savings to invest as per the above.

[Bobmuhthol]

These numbers aren't making sense to me. You should have a lot higher balance than $194k if you have a monthly payment of $1855 that you've paid off for 5 years 4 months (I'm assuming it's a 30 year mortgage), unless you've been paying off principal early. Your mortgage should have been ~$311k which should put you at something like $285k in principal.

15 year, 4.875%, $2104 monthly mortgage -> $256k

20 year, 5.375%, $1678 monthly mortgage -> $246k

I'm having a real hard time believing this is a $194k mortgage.

[Gan]

Honestly, if you have the opportunity to take 15 years at 4.875% that's so so so much better, to the tune of 5 fewer years of debt and $40k in interest not accounting for inflation and investment.

x2

[Suppa Hobbit Mage]

I have no credit card debt, owe on one car (monthly payment of ~550), and the house loan. My job is secure but who knows with the economy. I'm leaning towards the 15 year but was just curious if those are good rates and what all.

[Showal]

I recently refinanced as well. I say go with the 20 year fixed. You're very right about the economy. That's a reasonable concern. If you have the extra 200 bucks available, pay it extra every month. That way, if you NEED the 200 extra eventually, you'll be able to pull it out of your loan payments every month. On the other hand, 3 years down the line, if you do the 15 year payment and need that extra money, your mortgage company won't give a shit.

In addition, I believe that extra 200 a month would go straight to the principal amount, not the interest.

When you refinance, you generally get a month or two or three without any payments too. Pretty nice.

[Showal]

Are the interest rates really that high right now though? I bet if you look around, you could get them lower. I'm currently on a 4.7% 30 year fixed loan. I did refinance last year though.

[Suppa Hobbit Mage]

These numbers aren't making sense to me. You should have a lot higher balance than $194k if you have a monthly payment of $1855 that you've paid off for 5 years 4 months (I'm assuming it's a 30 year mortgage), unless you've been paying off principal early. Your mortgage should have been ~$311k which should put you at something like $285k in principal.

15 year, 4.875%, $2104 monthly mortgage -> $256k

20 year, 5.375%, $1678 monthly mortgage -> $246k

I'm having a real hard time believing this is a $194k mortgage.

I put 30k down on a $246k home and my original principal balance was $216k for 30 years. I've been paying the principal off early yes. My current principal balance is 194,677 with 24 years, 8 months left.

All my refinance options are to refinance at around $200k, I won't be risking any equity, just changing the term and percent. The numbers I provided are what the loan officer told me over the phone. If it makes a difference, I don't think it does unless it's less than the loan amount, my home appraises at around 260k now.

[Bobmuhthol]

<<In addition, I believe that extra 200 a month would go straight to the principal amount, not the interest.>>

Extra payments do go directly to principal but you have to pay off accrued interest first, which amounts to $900 in one month on a $200k balance (interest rate of 5.375%). Paying off the principal on a higher interest loan requires a lot more $$$ to be on par with the lower interest loan at high balances, and there's a tendency for mortgage payments to get easier over time (fixed payments + inflation + higher income = less of a burden) so unless there's a real risk of defaulting over the monthly payment difference the lower interest loan is a lot more beneficial.

[Showal]

I agree with Bob here.

I think it's a personal decision now of how much that extra $200 is going to benefit you. Could you be putting it toward a college fund type thing?

Considering you're financially in a good spot, especially with no real debt, that $200 might not make much of a difference to you.

[crb]

<<In addition, I believe that extra 200 a month would go straight to the principal amount, not the interest.>>

Extra payments do go directly to principal but you have to pay off accrued interest first, which amounts to $900 in one month on a $200k balance (interest rate of 5.375%). Paying off the principal on a higher interest loan requires a lot more $$$ to be on par with the lower interest loan at high balances, and there's a tendency for mortgage payments to get easier over time (fixed payments + inflation + higher income = less of a burden) so unless there's a real risk of defaulting over the monthly payment difference the lower interest loan is a lot more beneficial.

inflation? In this country? With this administration? Nah, never could happen.

/end sarcasm

Bob is right, If you believe we will see inflation in the future you're better off getting the highest monthly payment you can possibly stomach, because inflation will eventually make that payment easier to pay.

[Daniel]

I'm looking to refinance my home. I've currently got 24 years, 8 months on my existing loan of 194k, at 5.95% interest and a $1855 monthly payment.

If I refi it to a 15 year fixed, 4.875% interest, I cut 9 years and 8 months off my loan, and raise the monthly to $2014 a month. I'd save $290k over the course of the loan in PnI and interest savings.

Or, I could refi it to a 20 year fixed, 5.375% interest, $1,678 monthly.

They are both attractive, but I really like the 20 year one better as it is just win win for me. The 15 year, while $200 bucks more a month in payment isn't a ton, worries me because of the economy, otherwise I'd do that.

Any advice from our financially crazy smart folks or realtors/loan officers?

I'll do the 20 year no matter what, it pays for itself inside like 8 months I think.

Lower interest rate and make principal payments.

[Archigeek]

I agree that it comes down to whether or not the extra $200 is an issue for you now, or if you can see it being an issue for you down the road.

A related thing to consider is, how well are you positioned with your rainy day fund? I make sure I'm always able to make at least six months worth of house payments should the shit hit the fan, and frankly, I think a years worth is a better way to go. Currently I'm a little low on ready cash, but have enough easily liquid investments to make up the difference if need be. Having a decent amount of rainy day money is just as important as getting that nut down on the house debt. If you don't have at least six months worth of payments socked away, go with the longer loan/lower payment and stick the $200 a month into savings.

Last thing: that's a pretty hefty car payment. What is the rate on the car? You might consider financing the larger home loan and paying off the car. The car loan interest isn't tax deductable; the home loan is, and that's money in the bank.

[Bobmuhthol]

550 is not exactly a huge car payment if it's a 3 year loan on a standard car or a 5 year loan on a decent SUV. The interest is very likely negligible compared to the added interest of taking on the 20 year mortgage. I'd go as far as to say that the extra interest for the 20 year mortgage exceeds the value of the car loan.

[Archigeek]

550 is not exactly a huge car payment if it's a 3 year loan on a standard car or a 5 year loan on a decent SUV. The interest is very likely negligible compared to the added interest of taking on the 20 year mortgage. I'd go as far as to say that the extra interest for the 20 year mortgage exceeds the value of the car loan.

You fold the car loan into your new mortgage. You aren't adding any debt, you're just getting the loan at a lower rate and with a lower net monthly payment. Odds are SHM isn't going to be paying the whole thing down over 20 years anyway, so folding the car loan into the home loan puts cash in your pocket and changes a non-deductable interest payment into a smaller net that's all deductable.

Note that I'm not saying it's for sure a good idea, because you always have to consider human nature; it isn't just about numbers. It's easy to get into the habbit of repeatedly refinancing your house to squeeze all the equity out of it, and we've seen where that can get you in the last couple of years. Also, you have to be disciplined about it. It's something to consider, based on your own personal situation.

[Gan]

Not sure how you would fold the car loan into the mortgage.

Elaborate?

[Archigeek]

Not sure how you would fold the car loan into the mortgage.

Elaborate?

Sure. He's paid off a bunch on his loan. He takes out a home loan at the 20 year rate, large enough to cover his current principle and the car loan, and pays off the remaining nut on his car loan. Then he has one loan with only one payment, and all the interest is tax deductable. Your net monthly payment will be less than it was before too, and if you want you can use the difference to pay off more principle each month.

All things in moderation of course. You have to be comfortable with the amount you owe on the car being added to your home loan, and the new payments etc. Leave yourself plenty of equity in the house, with a bare minimum of 20% principle.

[Sean]

550 is not exactly a huge car payment if it's a 3 year loan on a standard car or a 5 year loan on a decent SUV. The interest is very likely negligible compared to the added interest of taking on the 20 year mortgage. I'd go as far as to say that the extra interest for the 20 year mortgage exceeds the value of the car loan.

If I recall correctly he bought a loaded up Mustang GT or something similar a few years ago. I'd assume he'd almost be done paying that.

[Sam]

I have no credit card debt, owe on one car (monthly payment of ~550), and the house loan. My job is secure but who knows with the economy. I'm leaning towards the 15 year but was just curious if those are good rates and what all.

For a comparison on rates, I refinanced about a year ago to a 15 year with a 5.125% rate.. I could have gotten a little bit lower, but this rate offered negative points and I wasn't really sure how long I'd be keeping the house.

I'm buying a new primary residence next month and just locked in a rate of 4.5% on a 30 year. The lowest the bank was offering was 4.25%, but that was with like 3.5 points. I'm doing a VA loan this time and unfortunately they only back 30 year mortgages.

[Durgrimst]

I'm doing a VA loan this time and unfortunately they only back 30 year mortgages.

Damn, I didn't know this.

[Sam]

Not sure how you would fold the car loan into the mortgage.

Elaborate?


If he has enough equity in his house, he can get a loan for greater than what he owes on his current loan and get the difference in cash. "Cash out" is how my wife always referred to it when she was a loan officer. Then he could use that money to pay off his car note, effectively changing the rate he's paying on his car to whatever the rate is on the refinance..

[Sam]

Damn, I didn't know this.

They also rape you on the fees if you're not a "disabled" veteran.. Your first VA loan it's like 2.15% of the loan amount, and the second time you use it it's 3.3%

So since I'm opting not to make a down payment, I'll have to pay the VA like 8 grand... If I did a conventional loan, they said they require that I have 5% for a down payment, but then I also have to have enough cash reserves to cover 6 months of mortgage payments on both my new house and my current house, since we're planning to keep it as a rental property..

[Stanley Burrell]

Do people even own their homes or automobiles before their 253rd birthday?

Edited to inclizzle: Fuck the banks, fuck the banks, fuck the banks-banks-banks. Fuck the banks, fuck the banks, fuck the banks-banks-banks. Fuck the banks, fuck the banks, fuck the banks-banks-banks, fuck the baaanks, oh fuck the banks-banks-banks.

[Gan]

If he has enough equity in his house, he can get a loan for greater than what he owes on his current loan and get the difference in cash. "Cash out" is how my wife always referred to it when she was a loan officer. Then he could use that money to pay off his car note, effectively changing the rate he's paying on his car to whatever the rate is on the refinance..

Thats what I was thinking - I just was not familiar with the phraseology of how it was initially posted. "folding car loan into mortgage".

In our state its called either a cash out refinance or an equity loan (HELOC). Our state will not let you pull out more than 75% equity of the appraised value of the property either.

[Ker_Thwap]

It's my experience that most people who get second/third mortgages on their homes squander those funds instead of investing them into some kind of long term assets.

Unless both you and your spouse both have an iron will, don't do it. It's all too common to see someone with a foreclosure notice, an upside down mortgage and a no longer shiny luxury SUV sitting in the driveway.

[Archigeek]

It's my experience that most people who get second/third mortgages on their homes squander those funds instead of investing them into some kind of long term assets.

Unless both you and your spouse both have an iron will, don't do it. It's all too common to see someone with a foreclosure notice, an upside down mortgage and a no longer shiny luxury SUV sitting in the driveway.

I've seen this happen too, and that's one reason I recommended not going below 20% equity in your home. Personally I think you're crazy to do some 80/20 100% financing slight of hand deal. If anything goes wrong, and a lot has gone wrong in the last couple of years, you have no where to turn. Also, 20% down usually allows you to take out the loan without mortgage insurance, and that saves you at least another $50 a month and way more than that compared to the insurance requirement on an FHA loan for example.

You only want to eliminate the car loan if you really can be disciplined about it, and aren't just going to be financing your car for 30 years that you're going to ditch after 3.

[Bobmuhthol]

<<It's my experience that most people who get second/third mortgages on their homes squander those funds instead of investing them into some kind of long term assets.>>

It's my experience that most people who get second/third mortgages on their homes are eliminating higher-interest crippling debt.

Obviously that's not the case here, but as long as we're sharing experience...

[Ker_Thwap]

<<It's my experience that most people who get second/third mortgages on their homes squander those funds instead of investing them into some kind of long term assets.>>

It's my experience that most people who get second/third mortgages on their homes are eliminating higher-interest crippling debt.

Obviously that's not the case here, but as long as we're sharing experience...

If they're running up high interest crippling debt to start with...

[Bobmuhthol]

Who else actually needs to borrow tens or hundreds of thousands of dollars in cash?

[Ker_Thwap]

It's not always a matter of needs, it's very often a matter of wants. The reason people take out second mortgages are as varied as the number of people.

They use the proceeds to buy boats, RVs, vacations, pools, lend money to their financially irresponsible children, medical bills, emergency repairs, business startup capital, high risk investments, I even met one old man who (as best I was able to determine) bought his son a Korean bride.

It's hard to judge whether or not these are good or bad reasons, but typically someone who "needs" to pay off crippling credit card debt, probably lacked the financial self control to spend within their budget to start with. Risking one's house to pay down credit card debt doesn't magically grant that person the self control to live within their means. If they ran up crippling debt to start with, chances are, they'll just do it a second or a third time even.

A lot of people blur the line between wants and needs, and it becomes even harder to check spending when a married couple is involved. Thus, unless you and your spouse have an iron will, don't do it.

[Daniel]

I love how you equate spending money on medical bills to making a high risk investment.

[Ker_Thwap]

Wrong, I listed a variety. There was no comparison. There was no judgment as should be evident in the following sentence.

[Sam]

I NEEDED all these text items. I know that much.