Question about mortgage payments

[Rowboat]

Ok here's the deal could a person take on a mortgage payment that is more than they want to pay for 30 years (but still easily within their ability to pay) and work hard to pay off a significant portion of the principle in the first 5 years and refinance the rest to drop the payment to a lower amount?

What are the pitfalls of doing such a thing other than catching a higher interest rate?

 

[StageLeft]

Of course. It's called refinancing. Many did it within the last few years when interst rates dropped. It depends on your rate as to whether it's worth doing and also your finances at the time and how much of the house is paid off. The only real draw is that if you plan on this NOW, then rates could rise. If they are level, or better yet fall (not likely to fall much), then you can refinance and the only hit you will take is the closing costs associated with that, but they will be lower than the costs associated with closing on the home purchase the first time (guessing somewhere between that high figure and the lower figure that typically is associated with a Home Equity Line Of Credit (HELOC), which is merely using some equity in your home to back a loan). I actually thought about this with my car a year or two back. I had paid off most of it and figured if I could take the year left and refi at a similar rate extended over 3-4 years, my payment would be nearly nothing. I didn't go ahead with that, though, and refinancing car loans is generally the realm of those who're in a really bad way with money at the time; it's not done often (I paid it off now anyway ).

 

[kranky]

You can do that. Depending on how much you pay in the first 5 years, you could possibly refinance the remaining balance on a 15-year loan and still have lower payments.

Potential pitfalls include the chance rates are higher when you want to refinance (as you said), or any number of things that would actually prevent you from refinancing in 5 years - job loss, disability, poor credit, severe drop in the value of the home. Also consider that if you are not investing anything and are sinking everything into prepaying on your mortgage, you could be hurting your long-term investment results.

May I ask why you are considering this type of plan?