refinancing - what would you do?

[zeronalo]

The wife and I have a nice place and have 10 more years to go on paying it off. We did the refi thing and are ready to sign and save some money on a lower interest rate.

However a friend of ours disagrees with what we are doing and now my wife is questioning which way we should go.

option #1 - we refi at the new, lower rate and pay off our 10 year mortgage in just over 8 by keeping our payments the same as they are now. My preferred option

option #2 - we lower our monthly payments and have some extra cash every month. Pay it off in the 10 years we have left and possibly make a few extra payments every year to pay it off early.

We have been paying the same amount for 15 years already (the loan was 25 years) and only had one late payment about 14 years ago. Pay on time every month. We live pretty well, travel, go out to eat etc. The house needs work and she wants me to buy a new truck to replace my 1993 Ranger (nick named "THE BEAST" for irony) I have no problem with the beater truck, I have nice one for the business. My business is booming, she's getting a raise and we are not hurting by any means. The property has doubled in value and is still going up.

I say keep paying what we pay now and get done with this thing asap. then we'll be sitting pretty and no owe anyone.

what would you do?

Freddy

 

[Howard2k]

Do you have other debts? Significant credit card debt etc? Should you be considering paying that down?

 

[Brazilnut]

Howard2k has a point. but I will say my house is paid off, and its a huge load off my shoulders. The feeling of freedom never goes away, and its been a decade since we burned the mortgage. That peace of mind is SO worth it!

 

[jppage25]

That's a big decision to make if you do have other debts the extra money would help. I would go with the option to accelerate payments as you need to at your own pace just in case something happens. We are going through rough times and the fact that we own our house has made all the difference to us.

 

[Evil Mopars]

"option #1 - we refi at the new, lower rate and pay off our 10 year mortgage in just over 8 by keeping our payments the same as they are now. My preferred option"

I say this one because you will still have extra cash from your wifes raise while paying your house off asap.
Hell, if your pretty comfortable with the cash you have to spend already, I'd use the wifes raise to make extra house payments to pay it off even sooner.

 

[caljoe]

#1, eight years will fly bye and you may be able to pay it off sooner with the booming busineness and the wife's raise.

 

[redking]

Unless you could earn more in investment income on the extra cash than your mortgage interest rate (given your own personal level of risk tolerance on an investment) it would be better to pay it down quicker. That's really the only analysis you need to do.

 

[six-string]

definitely take every opportunity to pay off your mortgage early.
not only should you continue the payments you've been making, even with a lower interest rate-but if possible you should increase your payments if you can. even increasing your monthly payment by $100 can save you thousands in interest over the life of a mortgage.
there are on-line mortgage calculators where you can plug in your numbers (payments, interest rates, # of months etc) and see what a difference it makes.

and the sooner you pay off the mortgage, you will then be able to redirect that money to other things like retirement savings/investments or paying off any other debts like cars, credit cards etc.
being debt free is where real freedom begins.

 

[Alligatorbling]

go with your gut

 

[peter679]

Here's what I did, I dropped over $350 a month in a payment, I keep my payment the same now that it was before and I'll pay my house off in half the time! Also being that my wife is a teacher and she doesn't get paid during the summer, we can pay the standard payment for 2 months and still kill our mortgage in no time.
Nothing wrong with what your doing!!! Whats the rate?? From what rate to what? I went from a 5.2 to a 3.5? and man it was the best thing I did.

Today as a matter of fact my boss is refinancing, she has 9 years left, she's refi'ing for 30, but she'll be able to pay it off in 9 still with less of a monthly payment. If you do it right, it will be the perfect move.

Good luck man!

 

[bocage44]

I'd go with option #1.

 

[theaxeman]

This is only my opinion of what I would do, so take it for what it is worth.

Since you have been paying for 15 years already, the payment you make every month is primarily going towards the principle, the interest rate you are paying now is no longer a factor. That interest has already been paid during the first few years of the loan.

If you re-finance, you will start making payments again that are primarily interest the first few years no matter how low the interest, you will not pay less interest. The fact is that you will pay more interest.

Leave the loan as is, and simply add as much as possible extra to the payment to get it paid off early.

 

[LPG]

I agree with the majority here.

My $0.02 is option #1.

Man, when you hit 8 years and realize you have two more to go......

You'll wish you had taken Option #1.

Just my opinion.

 

[Ambrola]

This is only my opinion of what I would do, so take it for what it is worth.

Since you have been paying for 15 years already, the payment you make every month is primarily going towards the principle, the interest rate you are paying now is no longer a factor. That interest has already been paid during the first few years of the loan.

If you re-finance, you will start making payments again that are primarily interest the first few years no matter how low the interest, you will not pay less interest. The fact is that you will pay more interest.

Leave the loan as is, and simply add as much as possible extra to the payment to get it paid off early.

This is the only advise that makes sense!

 

[rcole_sooner]

Since you have been paying for 15 years already, the payment you make every month is primarily going towards the principle, the interest rate you are paying now is no longer a factor. That interest has already been paid during the first few years of the loan.

If you re-finance, you will start making payments again that are primarily interest the first few years no matter how low the interest, you will not pay less interest. The fact is that you will pay more interest.

I just can't wrap my head around that. Maybe I need it explained, but the way I see it is...

Each payment still has interest. A smaller and smaller amount, but interest nonetheless.

A lower interest rate would reduce the amount of interest paid on each payment. As long as there were the same number of payments remaining, then there would be no more interest paid on a new loan.

The down side is, any fees (loan initiation, points, and such) would be additional cost on the new loan.

So would the new loan save enough money to justify the additional costs? Would that savings, be worth the hassle?

 

[Mad Scientist]

Owning a home free and clear is the way to go. Having no monthly payment far outstrips ANY possible Mortgage Deduction you might have as well.

The money not spent on a house can be invested in other areas.

 

[theaxeman]

I just can't wrap my head around that. Maybe I need it explained, but the way I see it is...

Each payment still has interest. A smaller and smaller amount, but interest nonetheless.

A lower interest rate would reduce the amount of interest paid on each payment. As long as there were the same number of payments remaining, then there would be no more interest paid on a new loan.

The down side is, any fees (loan initiation, points, and such) would be additional cost on the new loan.

So would the new loan save enough money to justify the additional costs? Would that savings, be worth the hassle?

I know it's not an easy concept to grasp, and I doubt I would be able to explain it adequately.

If the OP was in the first 5 years of the loan, I would say to refinance, but being over half way through the life of the loan, you would have to do the math to find out how much actual interest has been paid already, and add the amount of interest he would pay if he re-financed over the life of the new loan to really say for sure which is the best option.

Plus as you said, the additional hidden costs of a new loan etc.

I'm still betting he would be better off to continue the old loan and pay it off as quickly as possible.

 

[Drew224]

Paying off your house is more important than blowing disposable incoming, IMO.

 

[bertzie]

Hammer that shit out so you never have to worry about forclosure again.

 

[zeronalo]

Thanks -

I disagree with axeman because I can look at the amortization and see how much we are still paying in interest and its a pretty good chunk.

4.5% of what we owe is less than 6.5% of what we owe...................etc.

I carry huge amounts of credit card debt but it gets paid down and goes back up depending on work and cash flow. Its manageable so its a non issue for me. We have no other debt. No car payments, no loans (other than the mortgage).

I'm going to explain to the wife (again) why we should pay it off early and get this thing done.

Freddy