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  • refinancing mortgage

    My wife and I have a mortgage of 354,000 at 4.65% with about 22 years left, and can refinance with no closing cost to either a 15 year at 3.875% or 20 years at 4.375%. If we did the 15 years it would raise our payment by $400 a month and the 20 years would keep it around the same. We are also aggressively paying off student loans of 330,000 at 5.8% over the next three years. Would it be better to just take the 3.875% for 15 years or take the 20 years which would give us a little bit more flexibility/put it toward our student loans? Thank you for your input!

  • #2
    Whats your payback period if you do 20 years after closing, etc...? Is it better than say putting those closing costs in an extra payment. Run the numbers.

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    • #3
      The decision to go with a 15 year mortgage creates negative $400 cash flows per month for 15 years but in years 16-22 you have positive cash flow per month of ~$2,144 (derived from the Excel PMT function based on the numbers provided).  That yields a 8.245% APY hurdle rate, or IRR.  That is a good thing working for you.

      The student loans, on the other hand, are hurting you at a 5.96% APY.

      I would refinance to the 15 year and pay off the student loans ASAP.

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      • #4


        We are also aggressively paying off student loans of 330,000 at 5.8% over the next three years.
        Click to expand...


        can these also be re-financed?

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        • #5





          We are also aggressively paying off student loans of 330,000 at 5.8% over the next three years. 
          Click to expand…


          can these also be re-financed?
          Click to expand...


          Yeah I agree personally I'd make refinancing those student loans a high priority as well. Using the student loan refinance calculator at nerdwallet.com (just the first one that popped up on Google) if you paid $330K off in 3 years with a refinanced loan at 4% instead of 5.8% you'd save $266/month and $9592 over the course of the 3 years. You could then pay off the student loans a little more quickly or use the extra cash flow toward your newly-refinanced mortgage.

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          • #6
            My personal rule of thumb is that a refinance needs to be at least 50 bps lower before going through the hassle of a refinancing.  In your scenario, I would only consider the 15 year refinancing.  A rhetorical question;  Does no closing cost mean no cost at all or cost of close is rolled into the refinancing amount?  Having an extra 3 to 5k of costs potentially rolled into a refinanced loan is not something I would strongly consider unless your current option is some type of I/O loan.

            Also agree with others comments; from a pure financial perspective, attacking the higher rate loan would be a better use of excess cash flow.

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            • #7
              Hi

              What is the reasonable difference in the interest rate to refinance mortgage?

              I have 15 year loan 320,000 at 3.875% ( APR 3.99) I am offered 3.625%( APR 3.7) with no closing costs( no fee at all  ).  Should I refinance?

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              • #8
                If you JUST got the 15 year and are now talking about refinancing to a lower rate with NO costs then any rate reduction makes sense. In reality, however, most people are X periods into a Y period loan and looking to refinance into a Y period loan at X periods in. Is that your situation?

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                • #9




                  Hi

                  What is the reasonable difference in the interest rate to refinance mortgage?

                  I have 15 year loan 320,000 at 3.875% ( APR 3.99) I am offered 3.625%( APR 3.7) with no closing costs( no fee at all  ).  Should I refinance?
                  Click to expand...


                  3.8 vs 3.6 is practically no difference at all in my opinion.  Why bother?  You could just as easily start making extra $500/month payments towards the principle and probably save more in interest than a refinance.  Do you plan on staying in that home the full 15 years?  If so, OK, maybe it's worthwhile if the closing costs are truly zero, which I suspect is not true, you're probably paying for it somewhere else, possibly with a slightly higher interest rate for instance. You still have to pay for at least an appraisal though.  But, I wouldn't bother with such a minimal difference, doesn't seem worth the hassle.

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