$380k owed on a home that would appraise at least at $550k, 5% rate currently on a 30 year fixed. 3 years into it (I refi’d from 6.25% 3 years ago from the original purchase 4 years ago).
My in-laws just refinanced with their existing lender through HARP at no cost, they didn’t even want to refi but the rate and no cost were so good that when the bank offered it they took it. I’d love to do something similar but am not sure if that is feasible.
Regardless, should I go to a 30, 20 or 15 year fixed? When I refi’d the first time I just kept making the same payment amount to knock down the principal, based on the numbers I’m seeing the 15 year is more then doable. And I’d really love to have the loan paid off in 15 years.
But, we only have one kid now (7 months old) and the general plan is at least one more if not two. My stays at home with the kid, and will do so with future kids, but might start dabbling part-time with her old employer. So some $ from her might happen, but I’m concerned about locking so much of my income into the 15 year for when we’d have at least one more kid.
30 year is really a low monthly payment, I guess I can mimic a 15 year fixed by just keeping my existing plan of paying the original payment amount each month? Go to the 20 as that still lowers my payment but chops 10 years of needless interest off?
I also don’t really know if it is of benefit to still have a mortgage when college admissions/aid time comes?
The 30 allows you the flexibility if you have a bad month, changes in the work situation, whatever. You can always pay extra every month and pay it off ahead of time. Make sure you have an emergency fund of 3-6 months of monthly expenses before paying extra on the mortgage.
The answer is pretty simple. Do what you can afford over the terms of the loan. If your current over-payments are equivalent to the 15 year base payment, then that would be your best financial decision. However, you need to balance your payments with anticipated costs. Pump out another kid or two, and that hefty P&I on the 15 year may spread you thin. I was ambitious with all of my loan payments until we had our second child. Four years later, I make roughly 20% more at work but end up with about 20% less at the bottom line.
Even if the rates and terms get better than current offerings, they’re not going to get that much better. Score what you can. I’m 5.5 years into my 15 year, and we’re planning to refinance back to another 15 year loan at the original principal and use the difference for some repairs/upgrades. In the end, it will be like we took out a 20 year mortgage, but hopefully adding value to the house in the process.
I always opt for the shortest term I can afford because equity translates to mobility. However, if you have the discipline to pay extra principle and build the equity with the 30 year instrument, then the difference in interest rate is the deciding factor.
I didn’t trust myself to be disciplined so I went with the 15 three years ago. Tough economy makes me wish I’d kept the flexibility I would have had with a 30. I may be happy with my decision long-term, but right now it’s a little tough.
It looks like about $800/month difference at current rates at bankrate.com (4% for 30yr, 3.375% for 15yr). That seems like a big difference to me, but it may not to you. Do you really want to lock in a $2600/mo mortgage payment for the next 15 years?
As far as college funding, I don’t think the current rules count home equity as an asset when determining financial aid.
For me, I’d go with the 15yr (and did 8.5 years ago) loan because I don’t think I’d have the financial discipline to pay extra on the 30yr. We should have our current loan paid off in 3-4 years, so on the other side of it it sure will be nice to be in my early 40s and not have a house payment.
As far as college funding, I don’t think the current rules count home equity as an asset when determining financial aid.
YES they do now.
I don’t see why having another kid is really going to hit your finances that much. Plus hopefully your income will grow some over the next few years. Having that mortgage paid off as they start College will be a nice college savings plan. I say go for the 15yr. (of course thats what I did)
Borrow as long as you can and for as much as you can. Even if you take the extra and invest in high grade municipal bonds. It is the simple math of paying simple interest and earning compound interest. Over a long period of time, it is worth a lot.
Borrow as long as you can and for as much as you can. Even if you take the extra and invest in high grade municipal bonds. It is the simple math of paying simple interest and earning compound interest. Over a long period of time, it is worth a lot.
Interesting. That’s the exact advice folks were following in the run-up to 2008. Those same folks are now all whining and crying about how unfair it is that they are losing their homes to foreclosure.
When you pay extra I believe you are (mostly) just paying off the interest faster. When I refi’d to a 15 year it worked out to save me nearly 200k in interest alone over the life of the loan. I also don’t see any reason to invest in the stock market this year as well so might was well pay off debt… Is anyone making more in investments than they are paying on their mortgage interest these days?
I might be naive as I only have a 7 month old, but one more kid means extra food, clothing etc expenses. Baby sitter costs more, more classes outside of school, more practices to drive to, etc etc. So there is definitely a financial impact to having another kid (medical expense alone of having the kid). So that seems like a given.
I was trying to be as conservative as possible in assessing this, so my assumption has been that my income won’t grow. I also didn’t account for bonuses, nor potential income from my wife. I want to feel comfortable that if I hit a bumpy portion of life that it won’t have a huge impact to our finances. And since most marriages end over financial concerns, I view this like being a pre-emptive prenup
Curse you for suggesting the 15 year! I’ve wanted to do that for months, but the 30 seemed safest. That’s why I was thinking the compromise of the 20. It’ll be paid for when my hopeful 2nd child is ready for college.
Why won’t you random internet people just tell me what to do!
Great point. I had to explain that concept to my wife a lot about why were putting extra on the principal. There was no better 5% investment option than our mortgage.
I think I have to get actual estimates from lenders on a 15 and 30 to decide. And see about the costs.
I think you meant to say you are paying off the principle faster. Any extra you make above you payment goes against the principle. (which saves interest)
I think you meant to say you are paying off the principle faster. Any extra you make above you payment goes against the principle. (which saves interest)
Actually it depends on how you declare it when you make the extra payment. You can pay on principal, or you can pay ahead, which doesn’t actually save you anything on interest, but makes it so you can skip payments without penalty. The lenders can be sneaky and apply your extra payment to “pay ahead” if you don’t specifically declare that you want it applied to principal.
i promise you, the 30 payed like a 15 makes the most financial sense unless there is a huge penalty for early payoff.
a fair bit of warning though, i was mortgage analyst so i used to know what i was talking about before being laid off last winter. perhaps 9 months of unemployment rotted my brain. but having that 30 year payment is a hell of a lot better than 15 when the paychecks stop coming in! it could be the only thing that allows you to keep your home.
