Tricky decision between 15 Yr v/s 30 Yr mortgage refi

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hustler
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Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

Greetings, I am new here and glad to have find this great forum!

Here's my situation:

My home is valued at 610k. My current 15-year fixed mortgage rate is 2.375% with around 250k loan left on it. Before COVID rate discount completely goes away, I wanted to take another chance and get Cash Out Mortgage Refi.

I am getting following rates from Sabonic for 200k Cash out on top of the current loan:
15-year fixed: 2.125%
30-year fixed: 2.75%

I plan to put 200k cash out in my business (side hustle, which is looking very promising) and in Managed Investments with Fidelity.

Wondering which option I should go with, 15-year or 30-year. We have a very steady cash-flow with our jobs and hence, high monthly payment is not an issue. We are typically saving 8k each month.

Which one makes good sense based upon current situation, economic outlook and Math?

Thanks,
Hustler
MBB_Boy
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by MBB_Boy »

That is an interesting one. But to clarify - the two offers are otherwise equal in all ways? They have the same amount of lender credits (hopefully you aren't paying to get this done, otherwise you should check out the refinance megathread).

Assuming they are fully equivalent choices, I'm a person who focuses on rates. Since the amount of cashout is the same in both scenarios, I'm taking the lower rate. 15 years is plenty of time to take advantage of what are currently historically low rates - if all the fearful predictions of inflation come true you could make the case that 30 years would have been better. However, the odds are low that either A ) you'll still be in the house 15 years from now, let alone 30 and B) the inflation "problem" will persist for even 15 years. The odds of both happening are even lower since they are independent events.

Now, if you had to take the higher rate in order to get more / any cash out, that would be a different matter and the decision would depend on your intended uses for the money. In my most recent refinance, I COULD have gotten a lower rate....but at the cost of lender credit + amount of cashout. I took the credits and cashout, because the rate difference was small (2.375 vs 2.125).
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

Thanks for your thoughts! I am definitely not paying any points for either of those options. I am also leaning more towards 15 years, going to wait for a bit to see if I can squeeze it down to 1.99%. This may backfire as rates are going up, but as it's non-urgent thing, I will take a chance
NabSh
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by NabSh »

What is your monthly take home income to pay back the new mortgage? Are you using salary, or side business or investment account to pay for mortgage? Ideally your total house payment (mortgage , tax, insurance) should be under 1/3 of your income?
babystep
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by babystep »

I assume since you are taking the cash-out to invest the money in business and other managed investments, then you expect to be making much better return than the interest rate of 2.75%. If you didn't have a good chance of making higher returns then you wouldn't be doing the cash-out in the first place.

The 30 year reduces the monthly payment and gives you more cash to invest which is aligned with your strategy of getting the cash-out for investment.
Let us assume that you take 30 years but for some reason you decide to change your mind and payback in 15 years. What is the additional cost? 0.625% interest on the outstanding balance which is not much. Is this additional cost worth to you for the investment?

You didn't provide details about the age and long-term plan. That may impact the decision as well. e.g. if you intend to close the business in 15 years and maybe move towards more conservative investments then 15 year might make more sense.
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

NabSh wrote: Fri Apr 30, 2021 9:55 pm What is your monthly take home income to pay back the new mortgage? Are you using salary, or side business or investment account to pay for mortgage? Ideally your total house payment (mortgage , tax, insurance) should be under 1/3 of your income?
Monthly take home income (both salaries, no side-hustle income) for our household is about 18.5k (with annual bonuses averaged out)
With 15 year, monthly Mortgage, Tax, Insurance : 3.5k (roughly 1/5 of take home income)
With 30 year, monthly Mortgage, Tax, Insurance : 2.4k (roughly 1/8 of take home income)

So either way we are good
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

babystep wrote: Fri Apr 30, 2021 11:49 pm I assume since you are taking the cash-out to invest the money in business and other managed investments, then you expect to be making much better return than the interest rate of 2.75%. If you didn't have a good chance of making higher returns then you wouldn't be doing the cash-out in the first place.

The 30 year reduces the monthly payment and gives you more cash to invest which is aligned with your strategy of getting the cash-out for investment.
Let us assume that you take 30 years but for some reason you decide to change your mind and payback in 15 years. What is the additional cost? 0.625% interest on the outstanding balance which is not much. Is this additional cost worth to you for the investment?

You didn't provide details about the age and long-term plan. That may impact the decision as well. e.g. if you intend to close the business in 15 years and maybe move towards more conservative investments then 15 year might make more sense.
Age: 43, long term plan is to have multiple businesses (not solopreneurship) which gives me freedom to travel and have fun after 50

Liked your point about 30 year, may be I cna enjoy lower payments and pay it off, depending upon the economy and my financial situation
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sapphire96
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by sapphire96 »

Have you looked into a 20 year mortgage - would it’s rate be less than the 30 year?
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

sapphire96 wrote: Sat May 01, 2021 3:21 pm Have you looked into a 20 year mortgage - would it’s rate be less than the 30 year?
No great options with 20 years in this case
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

I finally locked it! Please let me know if this is a good financial move -

Current Mortgage Term:

15 Years Fixed at 2.375%
Loan left: 254k
Period left on loan: 14 years 1 month
HELOC associated with this loan has MAX limit of 142k, at the rate of 2.75% (this rate is Prime rate - 0.50% and subject to rise!)
HELOC amount used so far: 11k (I can repay it with cash, its not helping with Taxes anyways as we are doing Standard deductions)
----------------------------------------------------------------------------------------------------------------------------------------------------

Future Mortgage Term (would be closing in 2 months):

15 Years Fixed at 1.99% (Sabonic)
Loan amount: 459k (205k Cash Out). I plan to use this Cash Out for Fidelity Managed Investment + My promising side Hustle. I am paying 0.75%~ advisor fee approximately and my gains over last 5 years are 11.30%~ each year. Cumulative gains over 5 years are 71%.
Closing Cost: 3200$
----------------------------------------------------------------------------------------------------------------------------------------------------

Let me know your thoughts on my situation here.
- Would you go ahead with this refinance?
- Would you handle Cash Out of 205k in any different way?
- Any other things that I may be missing?


Thanks in advance! Support and expertise here on this forum is absolutely mind-blowing!

Cheers,
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dogagility
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by dogagility »

For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment, it would all be in a total stock market index fund (without paying an advisor).
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by dogagility »

For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

dogagility wrote: Thu May 06, 2021 8:23 pm For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Thanks for sharing your thoughts! Can you (anyone) suggest good funds to consider? I am comfortable to 80% stock exposure in my current situation. I am curious about simple 3 position portfolio concept but not sure how to pick the right ones
lakpr
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by lakpr »

hustler wrote: Fri May 07, 2021 7:44 am
dogagility wrote: Thu May 06, 2021 8:23 pm For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Thanks for sharing your thoughts! Can you (anyone) suggest good funds to consider? I am comfortable to 80% stock exposure in my current situation. I am curious about simple 3 position portfolio concept but not sure how to pick the right ones
At Fidelity, that would be Fidelity Total Stock Market Index (FSKAX), Fidelity Total International Index (FTIHX) and Fidelity US Bond Index (FXNAX).

If you did settle on 80:20 for your asset allocation, and I recommend 20% of the stocks to international, that would break down to 64:16:20 respectively.

Remember though, no bonds in Roth IRA.
Nowizard
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by Nowizard »

Personal decision, but we have always taken 30-year mortgages, invested the excess cash, and found that to be successful. Many years of that were while itemizing which no longer occurs, but reduces the interest rate further. The ability to have lower payments, combined with the ability to either pay off or substantially reduce the mortgage if desired, accompanied our decision and, of course, gives the opportunity to make additional payments to reduce the mortgage by choice. For us, the issue of a mortgage, even into retirement, did not/has not created anxiety or concern about greater complexity with investments than necessary, though it does go against frequent advice. It sounds like your decision may primarily be decided by your comfort level regarding having a smaller or larger mortgage for a shorter or longer period of time.

Tim
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by dogagility »

hustler wrote: Fri May 07, 2021 7:44 am
dogagility wrote: Thu May 06, 2021 8:23 pm For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Thanks for sharing your thoughts! Can you (anyone) suggest good funds to consider? I am comfortable to 80% stock exposure in my current situation. I am curious about simple 3 position portfolio concept but not sure how to pick the right ones
Here you go: https://www.bogleheads.org/wiki/Three-fund_portfolio
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

lakpr wrote: Fri May 07, 2021 7:51 am
hustler wrote: Fri May 07, 2021 7:44 am
dogagility wrote: Thu May 06, 2021 8:23 pm For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Thanks for sharing your thoughts! Can you (anyone) suggest good funds to consider? I am comfortable to 80% stock exposure in my current situation. I am curious about simple 3 position portfolio concept but not sure how to pick the right ones
At Fidelity, that would be Fidelity Total Stock Market Index (FSKAX), Fidelity Total International Index (FTIHX) and Fidelity US Bond Index (FXNAX).

If you did settle on 80:20 for your asset allocation, and I recommend 20% of the stocks to international, that would break down to 64:16:20 respectively.

Remember though, no bonds in Roth IRA.
Great, thanks, very precise answer!
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

Nowizard wrote: Fri May 07, 2021 9:05 am Personal decision, but we have always taken 30-year mortgages, invested the excess cash, and found that to be successful. Many years of that were while itemizing which no longer occurs, but reduces the interest rate further. The ability to have lower payments, combined with the ability to either pay off or substantially reduce the mortgage if desired, accompanied our decision and, of course, gives the opportunity to make additional payments to reduce the mortgage by choice. For us, the issue of a mortgage, even into retirement, did not/has not created anxiety or concern about greater complexity with investments than necessary, though it does go against frequent advice. It sounds like your decision may primarily be decided by your comfort level regarding having a smaller or larger mortgage for a shorter or longer period of time.

Tim
Liked your point of going with 30 years terms than 15 years, however, I did not like that mental block of being in loan and not owning house outright for such a long time. Also, 1.99 looks good compared to 2.75 in general. Mostly psychological I suppose, thanks for sharing your perspective!
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

dogagility wrote: Fri May 07, 2021 10:39 am
hustler wrote: Fri May 07, 2021 7:44 am
dogagility wrote: Thu May 06, 2021 8:23 pm For me, the fees with that Fidelity account would be a no-go. If I were to take out a loan for an investment (which I would not), it would all be in a total stock market index fund (without paying an advisor).
Thanks for sharing your thoughts! Can you (anyone) suggest good funds to consider? I am comfortable to 80% stock exposure in my current situation. I am curious about simple 3 position portfolio concept but not sure how to pick the right ones
Here you go: https://www.bogleheads.org/wiki/Three-fund_portfolio
Nice, thanks! I will try to do something like that and may be save on Fidelity Fees.
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by TXAGBH »

I may have missed this in a prior post, but with $8k extra each month to invest, why not just cash flow your side hustle with that money to get it off the ground and see if it matures into a profitable venture? In my opinion, that would be a safer move than further borrowing against your residence.
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

TXAGBH wrote: Fri May 07, 2021 9:10 pm I may have missed this in a prior post, but with $8k extra each month to invest, why not just cash flow your side hustle with that money to get it off the ground and see if it matures into a profitable venture? In my opinion, that would be a safer move than further borrowing against your residence.
I was mostly looking to tap into money that's easier to borrow and at lower cost.
Also, the prices have gone high for the real estate in recent times and if you are not selling home, cash out mortgage refi is perhaps the next best thing, I feel to take advantage of this. I am perhaps mixing too many things here thought'
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by Stinky »

hustler wrote: Thu May 06, 2021 7:07 pm
Future Mortgage Term (would be closing in 2 months):

15 Years Fixed at 1.99% (Sabonic)
Loan amount: 459k (205k Cash Out). I plan to use this Cash Out for Fidelity Managed Investment + My promising side Hustle. I am paying 0.75%~ advisor fee approximately and my gains over last 5 years are 11.30%~ each year. Cumulative gains over 5 years are 71%.
Closing Cost: 3200$
----------------------------------------------------------------------------------------------------------------------------------------------------

Let me know your thoughts on my situation here.
- Would you go ahead with this refinance?
- Would you handle Cash Out of 205k in any different way?
- Any other things that I may be missing?
I think that paying a 1.99% fixed rate for a 15 year mortgage is absolutely awesome.

I would not pay an advisor 0.75% per year to manage my money. IMHO, the advice provided by folks on this Board is equal to or superior to what you'll get from Fidelity - and it's FREE.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by jibantik »

Amazing mortgage rate and amazingly terrible advisor fees. A 1% fee will eat a third of your returns over an investment lifetime.
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

Thanks for your comments on the Advisor fees!

I have lost bunch of money due to my impulsiveness and panic in almost all areas - Gambling, Day trading, Real Estate, Crypto, Sports betting ..even Horse racing. Although it's not huge, it prompted me to made cautious decision to not involve myself directly with Investments. It also has been helping me a lot to focus my time and energy on things where I am good.

If I would have invested on my own, I would have perhaps sold it all in March/April 2020 and also on previous dips
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by Stinky »

hustler wrote: Sat May 08, 2021 10:09 am Thanks for your comments on the Advisor fees!

I have lost bunch of money due to my impulsiveness and panic in almost all areas - Gambling, Day trading, Real Estate, Crypto, Sports betting ..even Horse racing. Although it's not huge, it prompted me to made cautious decision to not involve myself directly with Investments. It also has been helping me a lot to focus my time and energy on things where I am good.

If I would have invested on my own, I would have perhaps sold it all in March/April 2020 and also on previous dips
I understand your desire to not be directly involved in managing your assets.

You could consider using Vanguard’s Portfolio Advisory Service (PAS) that would charge you only 0.30% per year. Even the fee reduction of 0.45% would add up over the years.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by RickBoglehead »

hustler wrote: Sat May 08, 2021 10:09 am Thanks for your comments on the Advisor fees!

I have lost bunch of money due to my impulsiveness and panic in almost all areas - Gambling, Day trading, Real Estate, Crypto, Sports betting ..even Horse racing. Although it's not huge, it prompted me to made cautious decision to not involve myself directly with Investments. It also has been helping me a lot to focus my time and energy on things where I am good.

If I would have invested on my own, I would have perhaps sold it all in March/April 2020 and also on previous dips
That statement about your past behavior - "impulsiveness and panic in almost all areas" isn't compatible with pulling cash out of your house to "play with" (my words). I wouldn't do what you're proposing if I was in your shoes. Your house isn't a cash generating machine for you to play with investments with, IMO.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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hustler
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Re: Tricky decision between 15 Yr v/s 30 Yr mortgage refi

Post by hustler »

Stinky wrote: Sat May 08, 2021 10:15 am
hustler wrote: Sat May 08, 2021 10:09 am Thanks for your comments on the Advisor fees!

I have lost bunch of money due to my impulsiveness and panic in almost all areas - Gambling, Day trading, Real Estate, Crypto, Sports betting ..even Horse racing. Although it's not huge, it prompted me to made cautious decision to not involve myself directly with Investments. It also has been helping me a lot to focus my time and energy on things where I am good.

If I would have invested on my own, I would have perhaps sold it all in March/April 2020 and also on previous dips
I understand your desire to not be directly involved in managing your assets.

You could consider using Vanguard’s Portfolio Advisory Service (PAS) that would charge you only 0.30% per year. Even the fee reduction of 0.45% would add up over the years.
Good idea, I will check them out for sure! Thanks
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