We are going to take advantage of the recent rate drop to refi our house. I'm having trouble deciding on loan term though. WWMMD?
Here's the current situation, with some rounded numbers:
Loan originated: 2010, 30 year FHA at 4.375%. Appraised for ~$248k, financed about $241k, about 97% LTV, payoff November 2040. Current balance: $199k, about 80% LTV relative to 2010 appraised value. Probably closer to 75% LTV based on today's value. Monthly payment = $1203/mo* + $90/mo MIP = $1293/mo. Will hit 78% LTV and drop MIP in Aug 2020. Cost to payoff: $309k, including remaining MIP
We would now be able to do a conventional loan with 20+% down, no PMI. Between the two local credit unions we bank with, we have the following very competitive options to refi:
30 years @ 3.5% - $898/mo, $323k to payoff in ~Sept 2049 - save $305/mo, spend $14k more over the life of the loan
20 years @ 3.375% - $1147/mo, $275k to payoff in ~Sept 2039 - save $56/mo (ETA: save $146/mo compared to current with MIP), save $48k over the life of the loan
15 years @ 2.875% - $1369/mo, $246k to payoff in ~Sept 2034 - spend $166/mo extra ($76/mo more than current with MIP), save $77k over the life of the loan
The above 3 examples are all based on financing an even $200k. So here's my thoughts.
In favor of the 15 year: 2.875% is amazing. Saving $77k is amazing. $76/mo more than I pay right now isn't much. We have no spare cash in the budget with 2 in daycare, but that's only going to last for 1 year. I should not make this decision based on that short term pinch.
In favor of the 20 year: most similar to current, but beats our current loan on monthly payment, payoff amount, AND term.
In favor of the 30 year: 3.5% is really cheap financing, and the mortgage is only one piece of our financial picture. Can't look at it in a vacuum. What could I do with $305/mo that would be more effective than paying down the mortgage? I still have $50k in SLs left and H has $57k left, a lot of which is at 4-5%. The money would be better served there, or in additional retirement savings.
I can rationalize any of the three loan term options, I'm just not sure how to decide. WWYD?
*taxes and insurance are omitted from all monthly payments because they are the same regardless of loan terms.
This is the sort of thing I can ruminate over endlessly and basically just did with our new home purchase. (And if we refi in short order, I get to do it all over again).
I would be real tempted by the $305 savings, especially given the SLs, but that $14k stings. I'm also real tempted by the 15y given the savings over the life of the loan. I feel like those options seem more worth it than the 20 year, which seems middle of the road. But if I only had the 20y option in front of me and a $48k savings, it would be mighty appealing and I'd jump on it.
So yeah, proof I like to ruminate but I have offered no actual recommendation.
Post by dragon's breath on Aug 9, 2019 10:26:18 GMT -5
If you do the 30 year loan, but pay it as if it is the 15 year loan, it should be paid off around July 2035. You will pay more in interest, and add an extra year, but it gives you a lot more flexibility. If there is a job loss, unexpected expense that takes a couple months to recover from, etc, you could reduce your mortgage payment to the actual payment, and then go back to paying extra when you recover from "the incident".
Or, you could pay off the student loans with the money you save, and then when the other loans are paid off, you add those payments to your mortgage payments. You could also add the cost of child care into your mortgage payments once that is over.
The ability to ease up on your payment during a bad month (or year), and still be able to make the full mortgage payment, is worth the piece of mind for me. I would do the 30 year, but pay extra.
ETA: if you did the extra payments from day one, you'd save $62k in interest compared to no extra principal payments. So, that $14k more no longer exists.
What about going in at the 20 or 30, paying what you pay now, which is more than each of those payments, and then adding extra to the payment when you are out of daycare? Assuming I did it right when I ran the numbers, I plugged the 30-year option into a calculator at $200k and by paying an extra $395 a month you would have it paid off in 17 years and 2 months.
That may not be the popular answer on MM but trying to be realistic as someone who also struggled with this when we had kids in daycare.
If you do the 30 year loan, but pay it as if it is the 15 year loan, it should be paid off around July 2035. You will pay more in interest, and add an extra year, but it gives you a lot more flexibility. If there is a job loss, unexpected expense that takes a couple months to recover from, etc, you could reduce your mortgage payment to the actual payment, and then go back to paying extra when you recover from "the incident".
Or, you could pay off the student loans with the money you save, and then when the other loans are paid off, you add those payments to your mortgage payments. You could also add the cost of child care into your mortgage payments once that is over.
The ability to ease up on your payment during a bad month (or year), and still be able to make the full mortgage payment, is worth the piece of mind for me. I would do the 30 year, but pay extra.
ETA: if you did the extra payments from day one, you'd save $62k in interest compared to no extra principal payments. So, that $14k more no longer exists.
I like this option. You can get a lot of the 15yr benefit without the associated risk.
If you have a significant savings cushion, then the 15y might be more attractive.
I love our 15 year mortgage. It's one of the reasons why we opted not to move and add on. We could not get afford 15 year mtg in the price of house we were looking at.
Personally I would do the 15 or 20. We never once paid extra with a 30 year loan.
Wow, I was not expecting enthusiasm on MM for the idea of refinancing with a 30 year loan! You're all 100% right about the value of flexibility. We could refi into the 30 year loan now, opt to only pay the regular monthly payment and having some breathing room until DD starts public school a year from now, and then once we're back to only one in daycare, start paying it like it's a 15 year loan, or divert the money toward SLs/etc. I just worry about the monthly discipline to do that. Going with a 15 or a 20 year term would force the discipline. I'm usually pretty good about stuff like this, but if we do the 30 year, I need to be SURE I'm going to be good about it, KWIM?
I'm also looking at the 15 year monthly payment and thinking... I handled that before, I should be able to do it again. Our current loan was a refi; we originally purchased in 2008 at 6.125% (ouch) for 30 years, and our monthly payment was in the same ballpark as the 15 year term would be now. We were childfree, and had huge SLs (more than double what's left now) and less income then so it's kind of apples to oranges, but it makes the 15 year payment seem less scary.
I'm also thinking about kids in college, and retirement timing. Our kids would theoretically be in college from 2033-37 and 2037-41 respectively. It would be really good not to have a mortgage in 2037! But we could achieve that in a variety of ways, and none of these loans excludes that possibility.
Wow, I was not expecting enthusiasm on MM for the idea of refinancing with a 30 year loan! You're all 100% right about the value of flexibility. We could refi into the 30 year loan now, opt to only pay the regular monthly payment and having some breathing room until DD starts public school a year from now, and then once we're back to only one in daycare, start paying it like it's a 15 year loan, or divert the money toward SLs/etc. I just worry about the monthly discipline to do that. Going with a 15 or a 20 year term would force the discipline. I'm usually pretty good about stuff like this, but if we do the 30 year, I need to be SURE I'm going to be good about it, KWIM?
I'm also looking at the 15 year monthly payment and thinking... I handled that before, I should be able to do it again. Our current loan was a refi; we originally purchased in 2008 at 6.125% (ouch) for 30 years, and our monthly payment was in the same ballpark as the 15 year term would be now. We were childfree, and had huge SLs (more than double what's left now) and less income then so it's kind of apples to oranges, but it makes the 15 year payment seem less scary.
I'm also thinking about kids in college, and retirement timing. Our kids would theoretically be in college from 2033-37 and 2037-41 respectively. It would be really good not to have a mortgage in 2037! But we could achieve that in a variety of ways, and none of these loans excludes that possibility.
Totally get that. That is why we set ours up with the extra money for our auto draft so that we have to make the effort to change it versus manually doing the extra every month.
Post by mccallister84 on Aug 9, 2019 13:02:33 GMT -5
There is very little that would convince me to add 10 more years back on to my mortgage even if it makes sense to do.
I feel like everyone I know says once daycare payments are over they thought they’d have a ton of extra money a month but between before/after/summer costs and kids activity costs it’s not the boon they expected it to be. Plus then a lot of people we know try to play catch up with college savings with the extra money.
I'd vote for the 15 year because must I know that while I have good intentions I doubt I would actually stick to paying off a 30 year early. With only one year of two in daycare I'd just suck it up for a year.
We refied into a 15 year and don't regret it. We don't save much towards college, but we will have the cash flow to pay for college cause we won't have a mortgage when DS is in college.
Honestly, I would go with the 20 year loan. It’s a good rate, essentially the same length of loan you have now and savings.
Ideally, yeah a 15 year loan and that interest savings is great- but it’s hard to add more expenses with two small kids.
I would not reset and do a 30 year mortgage... I know I would say “let’s pay the same” but knowing me, I’d need a bit of $ in one month and then take it from my overpayment and then never go back to paying more.
One other thing I think about, which weighs in favor of a shorter loan term, is that when I compare the effects of prioritizing paying off the house vs. student loans, payments on student loans are like throwing money in a black hole. There's no equity there, all I get for it is reducing debt. In contrast, money against a home loan buys equity. If we ever had a huge emergency, as an nth degree backup plan we could borrow against the house, or just sell the house and have access to that money. Sure, valuation fluctuates, but there's collateral there. Student loan payoffs are a lightening of the albatross, but there's no asset there, no collateral. Fewer options. My parents paid off their mortgage early, and then used a HELOC to pay for my bachelors degree because it offered better interest rates than SLs. They were comfortable with job security and paying it off, and it was a useful tool for them. You can't consider options like that without equity.
In the past I've opted to pay off SLs anyway, because I could deduct mortgage interest on my taxes (but not SL interest). We didn't itemize for 2018 though; we were just under the threshold where it would benefit us to itemize. And with this line, I'm now way over thinking this...
I'm a contrarian all over the boards today, lol. I think you should do the 15 year loan. $76 is almost nothing out of the whole monthly budget. I mean if you were struggling to eat, I'd feel differently, but I think you have some flexibility. Is there anything you don't care a ton about that you could cut out of your monthly budget? Things like making coffee at home, cancelling one of your streaming services, doing self care services at home, etc. For us I think I'd cut lazy weekend takeout a couple of times a month or drop HBO or a couple of other small changes.
I know you can pay off your mortgage early with other terms, but will you? Personally, I would not. I'd intend to, and then that $76 a month would end up going to things I don't need and I'd end up paying my mortgage longer.
If it was several hundred dollars more a month I'd feel differently, but $76 a month to not have a mortgage in 15 years - I'd have a hard time passing that up.
I didn’t read the responses but I was waffling between 15 and 20 year and decided on 20 yr so as to not have to deal with an increased payment. I calculated that if I refi to 20 yr but pay the 15 yr payment, it shortens the term to 15 yr+8 months so that’s what we’re going with to give us flexibility on payment, and I think a good compromise for your situation too. The quote I got for 30 yr wasn’t as appealing to me and I have no interest in increasing our term. We already refi’d once in this house in 2011.
Wow, I was not expecting enthusiasm on MM for the idea of refinancing with a 30 year loan! You're all 100% right about the value of flexibility. We could refi into the 30 year loan now, opt to only pay the regular monthly payment and having some breathing room until DD starts public school a year from now, and then once we're back to only one in daycare, start paying it like it's a 15 year loan, or divert the money toward SLs/etc. I just worry about the monthly discipline to do that. Going with a 15 or a 20 year term would force the discipline. I'm usually pretty good about stuff like this, but if we do the 30 year, I need to be SURE I'm going to be good about it, KWIM?
I'm also looking at the 15 year monthly payment and thinking... I handled that before, I should be able to do it again. Our current loan was a refi; we originally purchased in 2008 at 6.125% (ouch) for 30 years, and our monthly payment was in the same ballpark as the 15 year term would be now. We were childfree, and had huge SLs (more than double what's left now) and less income then so it's kind of apples to oranges, but it makes the 15 year payment seem less scary.
I'm also thinking about kids in college, and retirement timing. Our kids would theoretically be in college from 2033-37 and 2037-41 respectively. It would be really good not to have a mortgage in 2037! But we could achieve that in a variety of ways, and none of these loans excludes that possibility.
I set up my mortgage payment on my credit union's bill pay system, then made it automatic. That way it just paid the higher amount every month to kind of force that discipline.
I only cut back recently because of the realization that I don't plan for this to be my last house, and I need to use that money in other areas right now (to prepare for a different house). I didn't want it tied up in my house which I may or may not sell in a couple years.
But, I'm a single parent, so it's just my income, which is why I did the 30 year loan and paid extra every month. If I lost my job, I might not be able to make a higher payment, and I wouldn't be able to apply for a re-fi with no income. However, my base mortgage would have been low enough to survive with unemployment and savings for a little while, and not lose the house.
However we did refi our 30 year to a 15. It’s been great and I think we only have 11 or 10 years left which is awesome but yeah our mortgage is pretty high and we have had job losses but we prioritize the mortgage and have an emergency fund and my salary covers the mortgage plus some (dual income family typically). We want to do an addition but part of me is loath to add more loans to it.
I would choose the 20 year for all the same reasons listed above. It gives you flexibility and doesn’t start the clock again on a new 30 year term. Pay at the 15yr rate either now or when daycare payments ease up a bit.
I actually did this with my first house; the difference in the interest rate between the 15 and 20 year was negligible and I wanted the breathing room if needed since I was solely responsible. I set my mortgage automatic bill pay at the 15 year rate and then watched the balance creep down.
I’d do the 20 year. It has tons of benefits with very little impact to your daily life and as your kid expenses go down and you make more money, you can funnel extra income to pay off the student loans.
15 has amazing pros, but the con of a higher payment. You may want to do a comparison between the 15 and 20 year plan that factors in your student loan debt and see how much it would really save you and if it’s worth the short term pinch.
30 year is a hard no for me. There’s no way I’m paying more in a refinance and having a longer loan term. It doesn’t sound like you need to. I’d worry about being disciplined enough to off debt early.
I’d do the 15 year mortgage. The difference in payment is so low, you probably won’t even notice it. We calculated a 15 year and I *really* wanted to do it, but it was about $500 per month out of our comfort zone. My sister did a 15 year and just paid off her house at 41 years old (she lives in VLCOL) and I’m so jealous. We’ve still got 18 years left and I’d like to add extra payments once the kids are out of daycare to try to reduce that.
If the 15 is too much, I’d do the 20 over the 30.
Also, you a guys are both lawyers and I’m sure you make way more money than us and our mortgage payment is $2300 a month. So your payments sound so cheap to me! That might be coloring my thinking. 😉
Also, you a guys are both lawyers and I’m sure you make way more money than us and our mortgage payment is $2300 a month. So your payments sound so cheap to me! That might be coloring my thinking. 😉
I don't mean to single you out, but these kinds of comments are so frustrating to me, and are why I often hesitate to post on MM, especially with real numbers, even though a lot of people have given thoughtful advice which I appreciate. I'm referring to both the "so cheap" judgment and the assumptions about income.
As far as the "cheap"ness -- I don't know whether you meant that like "must be nice" or that all the numbers are so small to you that this is a stupid question to even ask, or "lol, what a crappy house that must be" or something else, but none of those help make this decision. I also mentioned above, the monthly payments in the OP are not PITI, they're missing the whole escrowed T+I component because it would be the same no matter which loan we go with. So the numbers look unrecognizable to me too.
As far as the income assumption, I didn't post a budget so there's no info here on income or on other financial obligations, so presuming income and availability of that income to put toward the mortgage isn't helpful either. H and I are both attorneys, but it's not the ticket to bank that people assume. We've worked really hard to get where we are, and I personally find it frustrating when people dismiss all that and just assume it's so easy for lawyers.
When we first closed on this house, H had just moved from his first associate attorney job, which paid $35k/year, to a government job that paid $49k (with benefits, OMG!!1!). I had a base salary of $65k plus bonuses. Total bank, right? We probably owed about ~$250k of the original $260k that we borrowed in SLs, $240k on our house, and had almost nothing in retirement yet. That was a hard damn start to our financial life. MM probably would have excommunicated me for buying the house, lol. I wasn't tracking net worth yet back then (frankly it was too terrifying) but when I started tracking in 2012, it was $-120k, at which point we'd been out of school for 5 and 6 years each. Yikes. Lawyerly bank, it was not. Obviously we've both moved up the pay scale over the years, but H still makes small city government job money, and is firmly in the five (not 6) figures. As a partner, I now make about as much as first year associates in NYC would. Add in daycare x2 and everything else that life costs, and we need to make careful decisions at least as much as anybody else.
In any event, I've thought about this all weekend, and I think I'm leaning toward the 20 year, partly because it's right in the middle and I'm feeling indecisive. I'm worried about being diligent enough about paying extra on the 30, and about the 15 being a bit aggressive to commit to. The 20, which we could always pay extra on to pay off in 15, feels like a good compromise.
ETA: actually I think we're going to do 20 years at 3.25% with 0.5% points, rather than 20 years at 3.375%, no points -- those are what our two different credit unions are offering. I didn't like the idea of points, but it actually works out nominally better with the 0.125% lower rate, plus it's with the credit union that we use primarily.
Post by followyourarrow on Aug 12, 2019 11:01:39 GMT -5
I'd do the 20 year. It will give you a tiny bit of breathing room while you have both kids in daycare. Once one of them is out of daycare you can put the extra $150/mo to student loans or pay extra on the mortgage, which ever will feel better/make more sense to you.
Post by whitemerlot on Aug 12, 2019 13:50:43 GMT -5
I would do the 20 year loan. You’ve been in the house long enough that I wouldn’t want to start the payments over. I would want extra money going to the student loans, so I wouldn’t do the 15.
I think the 20 year is a good solution. As someone with a very similar income trajectory but minus the daycare costs and second set of student loans, we only started paying extra on our mortgage a couple years ago (5 years into a 30 year mortgage, we started paying a whopping $85/month extra and have increased that a little each year since) and are just now considering adding enough extra to really make a significant dent in the term.
Susie, you are right, I’m so sorry. That was really insensitive of me. I think I was trying to be funny, but obviously it was not. I’ll try not to be so callous in the future.
Post by formerlyak on Aug 12, 2019 14:44:03 GMT -5
I might be chiming in late, but I'd go with the 15. Your kids are younger than mine, but the whole "no mortgage while kids are in college" part really makes me relax a bit when I think about how much college is going to cost me. We will have a mortgage for the first two years my older son is in college, but then ... no mortgage unless we decide to go forward with our remodel (which is on hold right now due to cost). We have 7 years left on our 15 year mortgage and it's a really nice feeling to know it will be paid off well in advance of retirement and that we will not have a mortgage payment 6 of the 8 years our kids are in college. We did have to stretch for a year or two like you will this year with both kids in preschool, but now that we are past that point, I can honestly say it was worth it.
I applied for the loan earlier this week, rounded up and submitted all the docs they asked for, and got estimates for both the 20 year and 15 year. We'll have to ultimately decide before we lock. I think we'll probably go 20 though.
But now I am wondering, with the market crash yesterday -- do I want to lock right now? Or might rates drop more? I know that's always the question when locking a loan, and nobody has a crystal ball. But the credit union loan officer that I'm working with commented that they might drop so we might want to hold, or we can lock late this week if we want to. I can't imagine they will go much lower than 3.25% for 20 or 2.875% for 15. That's already a lot better than what I'm seeing from a lot of national lenders.
ETA: Also, for the first time (since we will be <80% LTV now), I will have the option to escrow my taxes & insurance or not. WWYD? I've always been required to escrow until now. On one hand, it's easier to make a single monthly payment and let my lender monitor due dates and pay T+I. As a working mom of tiny kids I need streamlining in my life. OTOH, I already pay quarterly estimated taxes on income in Jan/Apr/Jun/Sep, so remembering to pay property taxes in Jan and school taxes in Sept isn't that much extra. And I already pay my auto + umbrella policies once a year; adding homeowners' to the bundle payment would also be NBD -- and I'd get credit card reward points for it.
Susie, we have been asking ourselves the same thing about timing a refi.. I'll be curious to see what others say.
Regarding escrow, we have always escrowed the funds for the convenience... when we refi, I will be managing it myself. Our current lender (it's been sold several times) just keeps messing it up. And if we have questions? There's no one we can call to talk to about it. It's always a "the group that handles escrow doesn't talk directly to customers, so give us the question, they'll answer in writing" type schenanigans. We're at ~65% LTV and they refuse to release the escrow, they're not sure what they're supposed to be escrowing for, and they're constantly sending us recomputations of the escrow amount for no reason at all. I would prefer to handle it myself at this point since I'm more confident in my ability to handle it than theirs. Only disclaimer? It's never been an issue at other lenders - when it works right, it's very nice to set it and forget it.
Have I mentioned that I ABSOLUTELY HATE SHELLPOINT MORTGAGE? With a fiery, fiery passion.
Susie I recently looked at a refi and am going to wait a few more months to see if rates go down. My break even point was about 40 months with several different loans I researched. I didn't think it was worth it to save $80/month. For me, rates have to go down to near 3.0% or even 2.75% for it to make a difference.
I roll my taxes and HO into escrow since it's just easier to do and let the mortgage company take care of it. I don't have to worry about setting the money aside monthly.