Refinance

[strife]

I'm looking to refinance my home. I have 20% paid towards my original loan which has 20 years remaining at 6%.

I'm wanting to move to a fixed 15 year loan.

My current mortgage company shows they can refinance me for 2.6-2.9% but the closing costs are around $4000. Is that a lot? Should I shop around?
Any suggestions are appreciated.

[Breand]

sounds about right, I paid more than that I think, more like 5k. I'd check with your local community bank if you have one as they might have a better cost.

Any reason why you waited so long? You were getting fleeced! I went from a 5.75% 30 year to a 3.75% 15 year two years ago, and my mortgage payments are virtually the same.

[strife]

We talked about doing it earlier( a couple years ago) but were also sorta thinking about moving in a couple years... pretty sure that isn't going to happen now(my wife likes where we live), so Im going to refi now. I wanted to do it a couple years ago but couldn't really get my wife on board... now she doesn't have a lot of choice.

[strife]

My initial Cal is I can lower my payment over $100 and knock 6 years off the loan.. also remove another $100 of PMI. Which I just got them to remove... so essentially $200+ a month and 6 years off... which we would probably PAH the same amount and try to pay off in 10 years.

[Breand]

the beautiful thing is the amount you knock off the principal every month. I went from taking $400 off a month to $1100.

[Vanraw]

the beautiful thing is the amount you knock off the principal every month. I went from taking $400 off a month to $1100.

Beside the slightly lower rate of a 15 year, it sometimes doesn't make sense to do 15 year. What I mean by that is the concept of paying off a mortgage early is one of self discipline more then a contract that forces you to do it. It depends on the rate and point difference between the 15 and 30 year.

Lets say you had 3% for 100k.

30 year is 421 a month
15 year is 690 a month.
Note no property tax or insurance here...

There is no reason you can't have a 30 year and simply pay the extra 269 every month and pay off your mortgage at the exact same time as 15 year.

The benefit of the 15 year is lower rate. About half a point.
The benefit of the 30 is if you ran into tough times like losing your job, you could lower your monthly outlay each month without having to go to the bank.

I always thought it was silly when people would sign up for bi weekly mortgage payments because it cuts like 4 years off your mortgage. All you have to do is pay one extra payment a year to get the same benefit.

[strife]

Mortgage companies are funny... my wife got into shit once with them because she sent in half the bill twice a month then got a letter from them saying she underpaid by half because they applied the first payment directly to the principle as an extra payment. The only way they would do bimonthly is if you allowed them to autodraft from your account.

I'm definitely doing 15 years for the rate... I plan on paying it off in 10 but don't want to be forced into the 10 year payments

[Donions]

Best I could get in my neck of the woods was 3.09 over 25. Not that it's relevant. That's also only with 5% down though.

[Breand]

Best I could get in my neck of the woods was 3.09 over 25. Not that it's relevant. That's also only with 5% down though.

If you put 5% down on a house, you aren't really buying it. You're just renting it from a bank, heh.

[strife]

Best I could get in my neck of the woods was 3.09 over 25. Not that it's relevant. That's also only with 5% down though.

If you put 5% down on a house, you aren't really buying it. You're just renting it from a bank, heh.

Technically anything less than paying 100% would just be renting... until you pay it off

[Breand]

Best I could get in my neck of the woods was 3.09 over 25. Not that it's relevant. That's also only with 5% down though.

If you put 5% down on a house, you aren't really buying it. You're just renting it from a bank, heh.

Technically anything less than paying 100% would just be renting... until you pay it off

not really. If you have say, 50% of it paid off and you get into financial trouble and suddenly can't pay the mortgage, you can just take out a home equity loan to pay the mortgage until you get back on your feet. Or you can sell the house. 5% down and you are a couple missed paychecks (or another housing bust) away from returning the house to the bank. To me, a person simply isn't ready to be a homeowner if you can only muster a 5% down payment. It's the banking cartel taking advantage of these people that destroyed our economy.

[Grieve]

Look at it another way. Two people each buy a house for $400k. One puts down 5% (20k). The other puts down 20% ($80k).

Massive depression occurs, they both lose their jobs, house value falls to $200k. At that point they both have a house way underwater, but one is out $20k in "real" cash while the other is out $80k.

Opposite occurs - massive recovery. House value goes up to $600k. The first person has seen their $20k investment rise to $220k (equity in the house) - 11 times it's original value. The second person has their $80k rise to $280k in equity. Still very nice, but only about 3.5 times the original stake.

For the record, I have always put down 20% (including my current house), but the options trader in me says that lower percentage gives the best bang for the buck.

And of course until they axe the mortgage deduction, the more interest you pay the better (especially if you are high income).

[Breand]

Look at it another way. Two people each buy a house for $400k. One puts down 5% (20k). The other puts down 20% ($80k).

Massive depression occurs, they both lose their jobs, house value falls to $200k. At that point they both have a house way underwater, but one is out $20k in "real" cash while the other is out $80k.

Opposite occurs - massive recovery. House value goes up to $600k. The first person has seen their $20k investment rise to $220k (equity in the house) - 11 times it's original value. The second person has their $80k rise to $280k in equity. Still very nice, but only about 3.5 times the original stake.

For the record, I have always put down 20% (including my current house), but the options trader in me says that lower percentage gives the best bang for the buck.

And of course until they axe the mortgage deduction, the more interest you pay the better (especially if you are high income).

Yes, but as we saw during this housing bust, people weren't willing to pay mortgages on their house when they were so far underwater and walked away from them (or bought some silly mortgage product so they could only put down 5% whose interest rate skyrockets after 3 years) losing whatever they put into it and destroying their credit, whereas those of us who put down 20% could ride it out and still get some semblance of a return on the sale when the market starts recovering.

And you can also be in the situation I am in, where we are selling our starter home and upgrading. So say the market drops 20%:

400k house is worth 320k.

600k house is worth 480k.

I lost 80k on my sale but am gaining 40k in new home equity.

[Grieve]

Right, but if you have a $320k mortgage ($400-80) and your house is only worth $200, plus you are out of a job, you may not be able to keep making the payments until things get better.

When I was fairly certain I was going to lose my job, I paid for mortgage insurance for a while (the type where they pay your mortgage for 6 months if you lose your job). But really...6 months is nothing in a major recession or depression. So I dropped it (and luckily hung onto my job, at least so far...)

[Donions]

The market is also pretty different in the area im living in Canada. Especially in terms of base wages and housing prices.

[Kakarat]

The market is also pretty different in the area im living in Canada. Especially in terms of base wages and housing prices.

Yup, Alberta does not have a problem with housing. Other than they are way overpriced lol. I work at a lumber company and have the benefits of employee discount for buying products. My dad is also a General Contractor and I have the know how to do a lot of the work myself. I bet I have 60-80k in sweat equity into this house. When I sold my first house(oct 2011) I pocketed $110,000 over top of lawyer fees and paying off the rest of my mortgage. I then reinvested a lot of that into the new/bigger house. I still have a mortgage running close to 3.2% interest set up to pay 4 payments a month. Only investing $240,000(ish) to complete this house. 1575 sq ft. plus finished basement. I could turn around and sell the thing for close to $480,000 (with the right buyer of course). I like to enjoy what I have worked so hard to build though.

Another note to housing, I know about 20 people that buy from Nelson Lumber that own property in Phoenix area. And I heard stories from them that they know a few others that have done the same!

Strife, my best advise is to even shop around for a nice low interest rate and always split your payments of your mortgage to as many the lender will allow. You may save anywhere from $50-500 on interest throughout the year. And that adds up over 15-25 years.

[Breand]

Strife, my best advise is to even shop around for a nice low interest rate and always split your payments of your mortgage to as many the lender will allow. You may save anywhere from $50-500 on interest throughout the year. And that adds up over 15-25 years.

I always argue the other side of this argument. To me there is no reason to take 5 years off a 30 year mortgage at the back side, when interest rates are at an all time low, and 25 years of inflation will make your last 5 years of payments feel like paying the monthly electric bill. Unless you are just rolling in the dough, have no other debts, and have no kids to send to college etc...having more capital at an earlier age that can be invested and compounded over 25 years will give you insanely higher returns that a 3.5% interest payment.

[strife]

I dunno... having 0 mortgage 5 years earlier is pretty appetizing. I signed on my refinance at 2.9%. I'm lowering my monthly payment about $40 and cutting about 5.5 years off.

We were already paying about $50 more a month and now I have an extra 40 from the refinance + I also removed my PMI which is another $110 a month more. So without changing what I pay I will be paying an extra $200 or so a month towards my principle. I am hoping to have my mortgage paid off before I am 40(8 years) but I'm not sure ill make it with what I'm currently planning on paying.

[Grieve]

am hoping to have my mortgage paid off before I am 40(8 years) but I'm not sure ill make it with what I'm currently planning on paying.

Heh, I'm already 41, and I just refinanced for 30 years. You'll be living the good life well before me.

[Slamz]

That, I think, is the ultimate goal. You don't want to live to be 80 paying rent the whole time. Long after you retire you'll still be forking over $1250/month+ (which, around here, is a modest two-bedroom apartment) on rent rather than owning and just having to pay property tax and upkeep.

Whatever you have for retirement will go a lot further if you used the good years to obtain ownership of a house.

Plus I think I about break even on mortgage + property taxes + upkeep versus renting, and I have a much nicer place.


The main argument for renting is that it keeps you mobile in a shitty economy. In a good economy you can buy and still be pretty mobile but anyone who bought a house 5 years ago isn't going anywhere without losing a lot.

[Kakarat]

Strife, my best advise is to even shop around for a nice low interest rate and always split your payments of your mortgage to as many the lender will allow. You may save anywhere from $50-500 on interest throughout the year. And that adds up over 15-25 years.

I always argue the other side of this argument. To me there is no reason to take 5 years off a 30 year mortgage at the back side, when interest rates are at an all time low, and 25 years of inflation will make your last 5 years of payments feel like paying the monthly electric bill. Unless you are just rolling in the dough, have no other debts, and have no kids to send to college etc...having more capital at an earlier age that can be invested and compounded over 25 years will give you insanely higher returns that a 3.5% interest payment.

Breand, yes the interest rates are at an all time low. Why not take advantage of that and put as much into principle as you can?... who knows, 10 years from now rates could be up to 7% again.

Maybe I should explain myself a little more with an example. Say you are paying $1200 month. Split into 4 payments or more. But 4 payments of $300 a month for simplicity. By the time the compounded daily interest adds up with a one time payment of $1200 you are paying more unwarranted interest than the 4 payments of $300. Even if it is $50 a year you are still keeping that money in your pocket instead of handing it over to the bank. It is just the way the system is set up, the bank never tells you that you can split your monthly payment up 4-6 times to save that little bit. The more money they make, the happier they are.

[Breand]

That, I think, is the ultimate goal. You don't want to live to be 80 paying rent the whole time. Long after you retire you'll still be forking over $1250/month+ (which, around here, is a modest two-bedroom apartment) on rent rather than owning and just having to pay property tax and upkeep.

Whatever you have for retirement will go a lot further if you used the good years to obtain ownership of a house.

Plus I think I about break even on mortgage + property taxes + upkeep versus renting, and I have a much nicer place.


The main argument for renting is that it keeps you mobile in a shitty economy. In a good economy you can buy and still be pretty mobile but anyone who bought a house 5 years ago isn't going anywhere without losing a lot.

<!-- m --><a class="postlink" href="http://www.examiner.com/article/the-net-worth-of-homeowners-vs-renters-is-something-to-ponder">http://www.examiner.com/article/the-net ... -to-ponder</a><!-- m -->

Net Worth of homeowners is 41 times that of renters. To me, home ownership is a no brainer. There are so many tax incentives (mortgage interest and property tax are HUGE deductions on your income tax) and your "rent" never changes if you have a fixed mortgage whereas renting costs adjust up with inflation.

[Breand]

Maybe I should explain myself a little more with an example. Say you are paying $1200 month. Split into 4 payments or more. But 4 payments of $300 a month for simplicity. By the time the compounded daily interest adds up with a one time payment of $1200 you are paying more unwarranted interest than the 4 payments of $300. Even if it is $50 a year you are still keeping that money in your pocket instead of handing it over to the bank. It is just the way the system is set up, the bank never tells you that you can split your monthly payment up 4-6 times to save that little bit. The more money they make, the happier they are.

Yeah, I get what you are saying. In this example you are right, it is beneficial to do that. I was referring to people who make additional payments on their principal through the year; like a common thing to do is pay every 2 weeks so that you are making an additional payment every year.

[Grieve]

I'm fairly sure the mortgage interest deduction will be gone within 5-10 years, probably starting next year for high earners. The vast majority of homeowners don't use it, because they take the standard deduction. Ironically, most don't realize that when they buy their house (some don't even realize later, if someone else does their taxes). Also ironically, everyone refinancing at these low rates is helping the government, since they have less to deduct.

So...don't rely on it too much, although it is very nice right now.

[Breand]

So...don't rely on it too much, although it is very nice right now.

Well living in one of the counties with the highest property taxes in the country, I definitely like the property tax deduction a lot more than the interest one. :mrgreen: