Refi question

[ohgillian]

I feel like this is a basic question, but I am not myself today and just can't really think.

We are maybe 4 years in on a 30 yr mortgage. We've also paid extra, so we've knocked off maybe 2 years.

Would it be dumb to refi to a 30 yr (fixed rate) mortgage? My thinking is that we can always pay more if we want to shorten it again, but that the extra breathing room would be nice.

Alternatively, I can refi to a 20 year and the payment would only go up $18 from my current payment.

For some reason I feel totally lost on this topic. Thoughts? Thank you.

[WOT?*]

What is the difference in the interest rates on the 20 and 30? You can refi to a term equal to your current length. Or refi to the 30 but continue to pay the amount you're currently paying.

Crunch numbers and see what works best for you.

[ohgillian]

Thanks for responding. They said it wasn't an option to refi to a random amount of years, but that I could do a 30 and then they would calculate how much I should pay monthly to have it work out to the same end date as I would currently have.

The 30 year is 3.75. The 20 year is 3.65. The payment difference is around $400.

Neither involve points or closing costs, b/c it's a program thru the lender who already holds my mortgage. I plan to call back and talk to a different person to confirm that.

[WOT?*]

Are you comfortable with your current mortgage amount? If so, I'd go down to the 20. The percentage points are a minimal difference but at $20 per month from an amount you're currently comfortable paying it will shave thousands of dollars off your total payoff (with the six year shorter time period combined with the lower interest rate you would be getting a double advantage.)

If you have concerns about making the payments or have future expenses that might be impacted (TTC, retirement, whatever) stick with the 30 as safer just so you have a bumper. The interest difference is minimal at the .1% and you can buck up the payments on principal to pay off to your comfort level while still having the security of a lower payment if one of you loses a job, you want to be a SAH, you need to build up savings for some reason, etc.

I would do the 20 because I'm more aggressive, DH would do the 30 for the security factor.

[ohgillian]

Thanks. Our current payment is very comfortable for us, but I do know that DH and I both feel that when we have a second child, things will be (obviously) tighter, with 2 in daycare. I tend to agree that the .1 is such a mininmal difference, that I'd like to do the 30.

Thanks for helping me think about it!

[friskypanda]

Couldn't you refi at 30 yrs, but pay the 20 yr payment every month? It would take some discipline to do that, but would give you some wiggle room when the 2nd child comes along.

[ohgillian]

May 10, 2012 15:47:46 GMT -5 friskypanda said:

Couldn't you refi at 30 yrs, but pay the 20 yr payment every month? It would take some discipline to do that, but would give you some wiggle room when the 2nd child comes along.

Definitely -- we coudl do that, and we do have the discipline to do it. I guess one thing I wonder is, given that we'd be borrowing money at such a low rate, does it even make sense to pay any extra at all? Part of me thinks I should take it at 30 years and run with it. (I mean that as a figure of speech -- not like I would actually run away w/the money.)

[WOT?*]

I'd still pay it off early if you're disciplined enough and still able to put money in savings for other purposes - as long as you're meeting your other savings goals. The interest rate compounds so even at that low interest rate, you'll be paying out twice the initial loan amount, so the sooner it's paid off the better. And after a certain point, the mortgage interest deduction is negligible.