Going to refinance our mortgage

[SagaLore]

So we're finally past the FHA penalty fee, since this month we've had our house over 2 years. Our FHA mortgage has an interest rate of 7.25%.

I just had one of my accountants run me some calculations, and here's what we came up with assuming a 5.57% interest rate:

57,000 30 year = 326.15 per month
57,000 30 year bi-monthly payments (155.40) = 310.80 per month
55,000 30 year bi-monthly payments (149.95) = 299.90 per month
57,000 40 year bi-monthly payments (140.06) = 280.12 per month I will be paying $77,467 interest when I'm done
57,000 15 year bi-monthly payments (227.32) = 454.64 per month I will be paying $24,825 interest when I'm done

For starters, if you were already aware, setting up your mortgage payments to come twice a month actually saves you a couple of bucks. Try to find a lender that is willing to do this.

Now I have to decide whether I want to A.) Have the lowest payments per month possible so I can pay our other debt off faster or B.) have a higher payment so I build up home equity faster and pay less into the interest. Considering that credit cards and car loans have higher interest rates, it might make more financial sense in the short term to go with the lower payments to increase my cash flow - but in the long term I spend far more on the interest of the mortgage than I have debt for anything else.

But could I refinance again in 2 years since that is about how long it would take me to pay off everything else if I had enough cash flow... any predictions what the interest rate might be then?

 

[StageLeft]

Probably higher rates in 2 years. I don't buy into the twice a month thing; instead I just have the required once a month payment and I've recently been paying the extra money myself along with it. Thus, if I have money problems down the line, I'm not stuck with a twice/monthly (since they end up being more than a single monthly, as you're paying every two weeks instead of every 4.X weeks which is what a month is).

Also if you get 5.57 for 30 year it should be lower for a 15.

 

[Parrotheader]

I personally opted for A.5

I wanted a low payment so we could have more cashflow (even though we don't have any debt) and wanted be able to afford our house on one income should we run into temporary hard times. Assuming we don't run into any problems and our income continues to increase I always have the option of making additional payments toward the principle to pay the house off quicker (although I haven't done so yet; we're still young and our home's value has risen nicely since we've bought it so we've still got some solid equity for the time being.) But there's a million different ways to come at it. Each situation is different.

 

[SagaLore]

Originally posted by: Skoorb
Probably higher rates in 2 years. I don't buy into the twice a month thing; instead I just have the required once a month payment and I've recently been paying the extra money myself along with it. Thus, if I have money problems down the line, I'm not stuck with a twice/monthly (since they end up being more than a single monthly, as you're paying every two weeks instead of every 4.X weeks which is what a month is).

Also if you get 5.57 for 30 year it should be lower for a 15.

Scoorb you might possible want to recalculate that. It's not every 2 weeks, it's twice a month, so exactly 24 payments. Since you pay almost every 2 weeks (plus a few days here and there), you are always cutting of 2 weeks worth of interest that would otherwise have compounded. So if you look at my 5 scenarios, the bi-monthly payments recombined as a single month figure come out LESS than a single monthly payment.

The first calculation is standard 30 year, one payment per month. $326.15 The second is still standard 30 year, two payments per month, a total of $310.80 per month. That's a savings of $15.35 per month. Although you're paying a little extra per month for your single payment, it's not going towards your interest - you're just going to finish paying it a few weeks to a few months in advance, with no affect on your final interest.

 

[Vic]

You need to fire your accountant.

First, it's not "bi-monthly," it's bi-weekly. If all you did was pay your half your mortgage payment twice a month, it would do you no good at all. What you do is pay your half your mortgage payment every 2 weeks, like every other Wednesday for example. The difference? 2 months a year, there will be 3 Wednesdays in a month. All bi-weekly does is have you pay any extra principal payment every year, and it only reduces your term to ~23 years if you stick with it. You would be much better off getting a 20 year term if you want to pay off your house as fast as financially possible but can't afford a 15 year. What? Most banks don't offer 20's, you say? Why do you suppose that is?
Oh yeah, and almost every lender will set up bi-weekly, you just have to wait until after you loan is closed and then pay a program fee, etc. In almost all cases where you can set-up bi-weekly during loan origination, it is a scam, usually done by a 3rd-party company that charges high fees and then more fees with every bi-weekly payment.

Second, hope you locked in that 5.5%. Rates are up over a quarter percent in the last 2 days.

Third, yes, you spend more servicing your mortgage debt than any other debt, but it is also your least expensive debt by far. It is tax-deductible and is offered in long-term fixed rates. And those rates are just off of historic lows with nowhere to go but up. Name any other debt that is like that. If you have equity in your house and a large amount of credit card debt, then you should consider consolidating that debt into your mortgage with a shorter term loan (20 or less years).

Rates will be higher in 2 years. Either that or our economy will have collapsed.


edit: typo

 

[Vic]

Originally posted by: SagaLore
Scoorb you might possible want to recalculate that. It's not every 2 weeks, it's twice a month, so exactly 24 payments. Since you pay almost every 2 weeks (plus a few days here and there), you are always cutting of 2 weeks worth of interest that would otherwise have compounded. So if you look at my 5 scenarios, the bi-monthly payments recombined as a single month figure come out LESS than a single monthly payment.

Whoa, whoa... whoever sold you that bill of goods should be reported to your state mortgage examiner. Mortgage interest is calculated in arrears. You wouldn't be cutting 2 weeks of interest off, you'd be adding it on.

 

[kt]

Originally posted by: SagaLore

Originally posted by: Skoorb
Probably higher rates in 2 years. I don't buy into the twice a month thing; instead I just have the required once a month payment and I've recently been paying the extra money myself along with it. Thus, if I have money problems down the line, I'm not stuck with a twice/monthly (since they end up being more than a single monthly, as you're paying every two weeks instead of every 4.X weeks which is what a month is).

Also if you get 5.57 for 30 year it should be lower for a 15.

Scoorb you might possible want to recalculate that. It's not every 2 weeks, it's twice a month, so exactly 24 payments. Since you pay almost every 2 weeks (plus a few days here and there), you are always cutting of 2 weeks worth of interest that would otherwise have compounded. So if you look at my 5 scenarios, the bi-monthly payments recombined as a single month figure come out LESS than a single monthly payment.

The first calculation is standard 30 year, one payment per month. $326.15 The second is still standard 30 year, two payments per month, a total of $310.80 per month. That's a savings of $15.35 per month. Although you're paying a little extra per month for your single payment, it's not going towards your interest - you're just going to finish paying it a few weeks to a few months in advance, with no affect on your final interest.

Sagalore, I hate to burst your bubble. But I think you got bought into their bi-monthly payment marketing. Be careful that they didn't tack on any kind of fee for that (ie: processing fee, or some other BS fee). As for the rate you got, that's kinda odd. How in the world did you get 5.57%? Did you mean 5.75%? I thought mortgage rates go in increments of 0.125%? So, 5.57% is kinda.. odd.

 

[SagaLore]

Originally posted by: Vic

Originally posted by: SagaLore
Scoorb you might possible want to recalculate that. It's not every 2 weeks, it's twice a month, so exactly 24 payments. Since you pay almost every 2 weeks (plus a few days here and there), you are always cutting of 2 weeks worth of interest that would otherwise have compounded. So if you look at my 5 scenarios, the bi-monthly payments recombined as a single month figure come out LESS than a single monthly payment.

Whoa, whoa... whoever sold you that bill of goods should be reported to your state mortgage examiner. Mortgage interest is calculated in arrears. You wouldn't be cutting 2 weeks of interest off, you'd be adding it on.

We're using a program called TValue5 that does these type of calculations. I haven't done anything with a bank yet.

 

[Bulk Beef]

/does Snoopy dance while looking at his 4.25% mortgage

 

[CPA]

Originally posted by: Skoorb

Also if you get 5.57 for 30 year it should be lower for a 15.

This is what first caught my eye. If your accountant is using this to calculate the 15-year note, then you need a new accountant.

 

[Vic]

Originally posted by: sward666
/does Snoopy dance while looking at his 4.25% mortgage

/laughs at sward666 and his puny mortgage interest tax deduction.

Hope you weren't counting on a tax refund come next April

 

[SagaLore]

Originally posted by: CPA

Originally posted by: Skoorb

Also if you get 5.57 for 30 year it should be lower for a 15.

This is what first caught my eye. If your accountant is using this to calculate the 15-year note, then you need a new accountant.

I just made 5.57 because I didn't know rate I could get. So then I kept that to compare the rest. My "accountant" is a fellow employee I got to help me for a few minutes to make the calculations that I asked for. She's not a mortgage expert and neither am I...

 

[Bulk Beef]

Originally posted by: Vic

Originally posted by: sward666
/does Snoopy dance while looking at his 4.25% mortgage

/laughs at sward666 and his puny mortgage interest tax deduction.

Hope you weren't counting on a tax refund come next April

I have some alternate methods of getting a few buck back.

 

[CPA]

Originally posted by: Vic
You need to fire your accountant.

First, it's not "bi-monthly," it's bi-weekly. If all you did was pay your half your mortgage payment twice a month, it would do you no good at all. What you do is pay your half your mortgage payment every 2 weeks, like every other Wednesday for example. The difference? 2 months a year, there will be 3 Wednesdays in a month. All bi-weekly does is have you pay any extra principal payment every year, and it only reduces your term to ~23 years if you stick with it. You would be much better off getting a 20 year term if you want to pay off your house as fast as financially possible but can't afford a 15 year. What? Most banks don't offer 20's, you say? Why do you suppose that is?
Oh yeah, and almost every lender will set up bi-weekly, you just have to wait until after you loan is closed and then pay a program fee, etc. In almost all cases where you can set-up bi-weekly during loan origination, it is a scam, usually done by a 3rd-party company that charges high fees and then more fees with every bi-weekly payment.

Second, hope you locked in that 5.5%. Rates are up over a quarter percent in the last 2 days.

Third, yes, you spend more servicing your mortgage debt than any other debt, but it is also your least expensive debt by far. It is tax-deductible and is offered in long-term fixed rates. And those rates are just off of historic lows with nowhere to go but up. Name any other debt that is like that. If you have equity in your house and a large amount of credit card debt, then you should consider consolidating that debt into your mortgage with a shorter term loan (20 or less years).

Rates will be higher in 2 years. Either that or our economy will have collapsed.


edit: typo

Vic is right on, except for not making one point. My experience is that you will normally get a better rate, lower closing costs and more flexibility in your terms if you use a broker, not a bank.

Also, if you do refinance, make sure you request that you use your Title Company from 2 years ago. Depending on the state and the Title Company you may be able to get a reduced Title charge.

 

[CPA]

Originally posted by: Vic

Originally posted by: sward666
/does Snoopy dance while looking at his 4.25% mortgage

/laughs at sward666 and his puny mortgage interest tax deduction.

Hope you weren't counting on a tax refund come next April

Now Vic, with that kind of logic are you saying the higher interest rate the better??? The lower interest rate will save much more over the long term than the tax deduction will. Though it would depend on his financial situation, but for most people this holds true.

 

[Vic]

Originally posted by: CPA

Originally posted by: Vic

Originally posted by: sward666
/does Snoopy dance while looking at his 4.25% mortgage

/laughs at sward666 and his puny mortgage interest tax deduction.

Hope you weren't counting on a tax refund come next April

Now Vic, with that kind of logic are you saying the higher interest rate the better??? The lower interest rate will save much more over the long term than the tax deduction will. Though it would depend on his financial situation, but for most people this holds true.

Oh, I was just pointing out that every upside has its downside

Also, I don't see in my other post where I recommended going to a bank for a mortgage. I don't think I would ever do that, seeing's how I am a broker.