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refinancing mortgage

Home Mortgages and Home Buying refinancing mortgage

  • Avatar Booster 
    Participant
    Status: Other Professional
    Posts: 1
    Joined: 03/11/2019

    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!

    #197364 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5400
    Joined: 01/12/2016

    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.

    #197414 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2698
    Joined: 01/14/2017

    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.

    #197424 Reply
    Liked by DCdoc, Peds
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3033
    Joined: 01/08/2016
    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?

    #197433 Reply
    Avatar mianesmd 
    Participant
    Status: Physician
    Posts: 17
    Joined: 03/08/2018
    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.

    #197435 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 512
    Joined: 07/14/2017

    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.

    #197439 Reply

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