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  1. #1

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    Default 15 year or 30 year mortgage refinance?

    My wife and I locked in a few weeks ago at 5.375% and can go that route or 4.875% for 15 years. Our mortgage now sits at 6.5% and we owe a little over 100k on our house. We can easily afford the 15 year payments but everyone we talk to says it's not worth it for us to do the 15 year loan as we're only planning on staying in this home for another 6-8 years. However, I don't see why I wouldn't take the 15 year loan. With the way the economy is and the volatility of the stock market paying off the loan is a win-win "investment" in my eyes.

    Just checking to see if anyone has any input on this.

    Oh, and if anyone has a magic 8-ball what are your predictions as far as mortgage rates go over the next 1-2 years? A few weeks ago we locked in at the perfect moment when we got 5.375. Right now with my bank they're over 6% in less than a month.

    Thanks.

  2. #2

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    15 year loan = less interest paid and more equity.

    Even if you only stay in it for 6-8 more years you'll still be in far better shape when you decide to sell.

    If you can afford it, go for it.

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    We just refinanced for 15 years, every way I looked at it, it was a better deal.

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    I would go for the 15 year note because you can. The overall savings in interest is phenomanal and even though you are only going to be in the house 6 to 8 years, that would be that much more equity you would have built in the house. I would think most would encourage someone to have the shortest mortgage on your house that you can afford because of the money you can save. This is by no means a professional opinion, but just my personal one.
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    We just moved recently, but up until that point I had refinanced into a 15 year mortgage and liked it a lot. Certainly over the life of the mortgage you'll save a ton in interest.

    However, with interest rates as low as they you could keep the 30-year mortgage and take the extra cash and invest it. You'll also get less of an interest deduction with the lower 15-year rate.
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    15 year because you can afford to. you'll be way ahead 6-8 years from now, compared to the 30 year. make one extra payment per year and really pay it off fast! ;)

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    Do you want to keep paying into equity for the house or would you rather pay the payroll of the bank employees?
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    Based on the numbers you gave (100k mortgage, 15yrs @ 4.875% vs 30yrs @ 5.375%), after 6 or 8 years :

    30 year mortgage, after 6 years (2014) you'd owe 89k. After 8 years (2016) you'd owe 84k.

    15 year mortgage, after 6 years (2014) you'd owe 62k, and after 8 years (2016) you'd owe 49k.

    If you can afford the 15-year mortgage, I wouldn't even hesitate.
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    It all depends. If you're not confident you could invest that money with decent yield, then shorter mortgage is the way to go. On the other hand, if you put that money into stocks or other investments and are lucky enough to get good yield, you'll make that money grow much faster than with shorter mortgage.

    Here in TX where rental income would easily cover your mortgage payment, I would just buy another house for investment purpose and lease it if I had surplus of income. In other markets where rent doesn't cover the payment it is different. As it is, I already have two houses and one condo abroad so unfortunately I can't take advantage of the current housing crisis, otherwise I'd love to get my hands into a foreclosure house, fix it up and lease.

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    15 is the winner....more money when you sell the house and better speakers and amps:D....
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  11. #11

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    Do the 30yr mortgage and do one extra principal only payment each year. Cash is going to be "king" in the coming years. I'd rather have a 6 month cash nest egg in money market fund then spend it all on a mortgage just to pay down my equity.
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    I'd stick to the 30 year and do bi-weekly payments with a little extra down on principal. You won't get hit with a refi charge and will pay down pretty quick. Just my .02
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    If the rate was the same or close than his current rate, then that's what I would do. 1.125% is a decent jump (for 30y) but if the refinance costs are high then there is a need to calculate when that refinance cost is saved. 15y, and the saving is 1.625%.

    How long do you have left in your current mortgage? Is your monthly payment for the 15y going to be close to what the current 30y payment is?

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    Our numbers were VERY similar to Maz's case. With the drop in interest rate, our payment went up ~200 a month. Maybe a little more......it wasn't that severe of an increase. We are still able, at 15 years, pay over and make an extra payment a month.

    IIRC, the extra payment a year on a 30 year knocks 7 years...which would be 23. 15 is even better than that.

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    As cheap as mortgage money is right now, go 30 and invest aggressively at your age.
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  16. #16

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    Quote Originally Posted by RuSsMaN View Post
    As cheap as mortgage money is right now, go 30 and invest aggressively at your age.
    I very much agree, although investing is not for everyone.

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    Don't laugh, but we've only had the house for 6 months! The bank offered to refinance from 6.5% to 6.0% for free, or down to 5.375% for $2100 in closing costs. They will go down another 0.5% to 4.875% if we want to do the 15 year loan, which is cake.

    Going from 6.5% to 4.875% will save us about $1800/year in interest, so we will recoup the closing costs within the first year and 2 months. I already do investing and contribute a decent chunk into ETFs, index funds, etc. I would like to increase our savings just in case of an emergency and think that having $10k in there would be a good thing. I currently have a 4.0% online savings account (was 5.3% a few months ago) so that will yield some flow as well.

    We've also been making an additional $200-$300/month payment which will mean going to the 15 year won't increase our payments at all if we just stick to what we've been doing.

    Thanks for all the good advice so far!

  18. #18

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    Quote Originally Posted by phuz View Post
    15 year loan = less interest paid and more equity.

    Even if you only stay in it for 6-8 more years you'll still be in far better shape when you decide to sell.

    If you can afford it, go for it.
    Bingo! you are our daily winner. ;)

    Phuz is right.. i just refinanced @ 5.25% 15 yr fixed. :D

    I'll be saving over $200 in interest a month, let me repeat that SAVING OVER $200 a month in interest that they won't get. :)
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  19. #19

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    Remember everything is negotiable. Try to do the program you like and get them to do it w/ less closing costs. Most of those are "fluff" fees anyway.
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  20. #20

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    That $1800/year in interest is probably more like $1100 due to the fact that mortgage interest is deductable.
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  21. #21

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    30 yr loan right now to me just doesn't make any sense.. as low as rates are or will be in March when the Feds drop the rates again.

    why would you go for a 30 yr loan and pay more interest over a 15 yr loan, no matter how long you are going to stay in your house?

    If a car dealership offered you a 5yr loan and and you know a 6yr loan would be less monthly payments.. but in the long run, that 6 yr loan will kill you in interest. I will always go for the shortest length of a loan I can.

  22. #22

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    Quote Originally Posted by tcrossma View Post
    That $1800/year in interest is probably more like $1100 due to the fact that mortgage interest is deductable.
    40% tax bracket? Lucky man. Isn't it federal and state tax only? We don't pay state so it's considerably less here.

  23. #23

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    I need to find a new bank, mine won't go under 6.25%.
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    Quote Originally Posted by danger boy View Post
    why would you go for a 30 yr loan and pay more interest over a 15 yr loan, no matter how long you are going to stay in your house?
    The reason for some, not all, to stay on 30y fixed would be that the extra money would get you much better yield if invested wisely. 5% mortgage interest comes down to 4% or less when deductions are counted in. Put that into investments and with 10% annual yield you're saving much more money than paying the mortgage off faster. Of course if you invest it poorly you're losing quite a lot more.

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    mortgage rates have been all over the place for the last month or so. I just did a similar 6.5% down to 6.0% with no costs with my mortgage holder.

  26. #26

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    Quote Originally Posted by Face View Post
    I need to find a new bank, mine won't go under 6.25%.
    Just wait till next month.. ;) I just read the headlines every day. then locked in my rate with my lender when I thought it had bottomed out... my lender sent me a nice email saying.. "I had excellent timing". ;)


    Wednesday February 27, 3:28 PM EST

    WASHINGTON (AP) — The Federal Reserve is ready to lower interest rates again to brace the wobbly economy even as zooming oil prices spread inflation, Chairman Ben Bernanke signaled to Congress on Wednesday.

    He is fighting to keep the economy afloat after mighty blows from the housing and credit crises, while trying to contain inflation.

    For now, the priority is shoring up the economy, Bernanke suggested in an appearance before the House Financial Services Committee. He pledged anew to slice a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.

    "The economic situation has become distinctly less favorable" since the summer, the Fed chief told lawmakers.

    Since that time, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that combination of bad news has made people and businesses more cautious about spending and investing — further weakening the economy.

    The country should prepare for "sluggish economic activity in the near term," Bernanke said. Concern is growing about the possible return of stagflation, when stagnant growth is combined with rising inflation, for the first time since the 1970s.

    Were energy prices to continue to rise at a sharp clip — something the Fed does not anticipate — it would "create a very difficult problem" for the economy, Bernanke said. Inflation would spread and growth would be further restrained, he said. If that happened, it would be a "very tough situation," he added.

    The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, sticking closely to assurances he offered earlier this month.

    The central bank started lowering a key interest rate in September. Over just eight days in January, the Fed shaved 1.25 percentage points, the biggest one-month reduction in a quarter-century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting, March 18. Some analysts believe rates will drop again in April.
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    Woot!
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    If you would be comfortable and willing to borrow against your home to invest in whatever (because in reality that is what you would be doing)....go 30 years and invest the difference in the payment. Just be sure you are disciplined enough to invest the amount EVERY month to make that a viable investment strategy. If not, go 15.

    My magic 8 Ball tells me that over the next 1-2 years rates will go down some and they will go up some but probably won't stay the same. I hope that helps.
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  29. #29

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    Ok, i'm outta here. i gotta go make some money to pay off my new mortgage loan :p :D

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    Quote Originally Posted by Sami View Post
    It all depends. If you're not confident you could invest that money with decent yield, then shorter mortgage is the way to go. On the other hand, if you put that money into stocks or other investments and are lucky enough to get good yield, you'll make that money grow much faster than with shorter mortgage.
    Ditto this. At those interest rates, it's really cheap money. If you took the difference between the monthly payments and stuck that straight into your 401K or other retirement, at the end of 15 years you would be WAY ahead of where you would be with the 15 yr mortgage.
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