Thoughts on Potential Mortgage Refinance?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
SomeGuy99
Posts: 1
Joined: Fri Jun 18, 2021 7:18 pm

Thoughts on Potential Mortgage Refinance?

Post by SomeGuy99 »

Hello Bogleheads,
Longtime reader, very infrequent poster. I am hoping to get some input from this extremely savvy group on potential mortgage refinance options.

Current Situation:
30-year fixed at 3.875%
Remaining principal balance $250,000
Rough value: $1,250,000
Remaining months: 175
Monthly P&I: $1,900

Bankrate quotes (Excellent credit):
30-year fixed = 2.5% with ~$3,500 upfront; monthly P&I would be $988
20-year fixed = 2.25% with ~$4,500 upfront; monthly P&I would be $1,295
15-year fixed = 1.875% with ~4,100 upfront; monthly P&I would be $1,594

We plan to keep this house for at least five years and potentially as long as 2031, although certainly plans can change for any number of reasons.

For about the last 10 years we have paid additional principal, typically around $1,000 extra per month. We fully fund retirement accounts, 529's, taxable accounts, etc. No debt other than mortgage.

My biggest question/concern is having the % of principal knocked off each month "reset" to the ratios you see at the creation of a new mortgage (high interest, low principal). Currently we knock off ~$1,000 every month from the principal balance and I feel like we've done a lot of hard work to get to this point. Perhaps a mostly emotional and not very well calculated decision, which is why I am asking for your input.

If we decide to refinance, regardless of 30/20/15, we intend to continue adding additional principal payments each month (and yes, we invest more each month into our various taxable accounts - the "why not do both" answer to the most popular question on this forum. ;)

Our goal remains to pay off the mortgage in the next 5-8 years and retire with absolutely zero debt. 

So - THE QUESTION - would you refinance and if so, at what term?

If I have forgotten any relevant details, please let me know and I will add.

Thanks for any advice.
ShowMeTheER
Posts: 464
Joined: Mon May 24, 2010 9:12 am

Re: Thoughts on Potential Mortgage Refinance?

Post by ShowMeTheER »

Yes… of these choices, I’d go with the 15-yr
presto987
Posts: 455
Joined: Sun Aug 30, 2020 10:58 pm

Re: Thoughts on Potential Mortgage Refinance?

Post by presto987 »

Absolutely yes, you should refinance. Your current interest rate is high. If you move to a lower interest rate and keep making the same monthly payment that you're currently making, that means that more of your payment will go toward principal. You will pay less interest over time, and your loan balance will decline more quickly.

It's a no-brainer to refi. The only way it can hurt you is if you incur upfront costs to refi and then sell the house before the interest savings offset those costs. For that reason, you should consider taking a slightly higher interest rate to offset the costs, unless you are quite sure that you won't sell the house for a while.

If you are planning to make monthly payments that are higher than the required payment for a 15-year mortgage, then I would definitely go with a 15-year, as that will get you the biggest interest savings.
SomeGuy99 wrote: Fri Jun 18, 2021 7:22 pm My biggest question/concern is having the % of principal knocked off each month "reset" to the ratios you see at the creation of a new mortgage (high interest, low principal). Currently we knock off ~$1,000 every month from the principal balance and I feel like we've done a lot of hard work to get to this point. Perhaps a mostly emotional and not very well calculated decision, which is why I am asking for your input.
I don't understand this concern at all - not sure what you mean? If you pay extra each month then this makes no difference.
trooma7
Posts: 28
Joined: Tue Nov 19, 2019 4:54 am

Re: Thoughts on Potential Mortgage Refinance?

Post by trooma7 »

SomeGuy99 wrote: Fri Jun 18, 2021 7:22 pm My biggest question/concern is having the % of principal knocked off each month "reset" to the ratios you see at the creation of a new mortgage (high interest, low principal). Currently we knock off ~$1,000 every month from the principal balance and I feel like we've done a lot of hard work to get to this point. Perhaps a mostly emotional and not very well calculated decision, which is why I am asking for your input.

If we decide to refinance, regardless of 30/20/15, we intend to continue adding additional principal payments each month (and yes, we invest more each month into our various taxable accounts - the "why not do both" answer to the most popular question on this forum. ;)

Our goal remains to pay off the mortgage in the next 5-8 years and retire with absolutely zero debt.

What you fear would not actually be the case. If you use an amortization calculator online, you'll see that with a 15 year mortgage at 1.875% $1203 of the $1594 payment would go to principal starting the first month.

https://www.bankrate.com/calculators/mo ... lator.aspx

Lower payments and increased principal payment right off the bat. Win-win. :sharebeer
JBTX
Posts: 8367
Joined: Wed Jul 26, 2017 12:46 pm

Re: Thoughts on Potential Mortgage Refinance?

Post by JBTX »

viewtopic.php?f=2&t=289559&start=10550

Lots of info here in refi megathread.
babystep
Posts: 516
Joined: Tue Apr 09, 2019 9:44 am

Re: Thoughts on Potential Mortgage Refinance?

Post by babystep »

SomeGuy99 wrote: Fri Jun 18, 2021 7:22 pm Hello Bogleheads,
Longtime reader, very infrequent poster. I am hoping to get some input from this extremely savvy group on potential mortgage refinance options.

Current Situation:
30-year fixed at 3.875%
Remaining principal balance $250,000
Rough value: $1,250,000
Remaining months: 175
Monthly P&I: $1,900

Bankrate quotes (Excellent credit):
30-year fixed = 2.5% with ~$3,500 upfront; monthly P&I would be $988
20-year fixed = 2.25% with ~$4,500 upfront; monthly P&I would be $1,295
15-year fixed = 1.875% with ~4,100 upfront; monthly P&I would be $1,594

Our goal remains to pay off the mortgage in the next 5-8 years and retire with absolutely zero debt. 

So - THE QUESTION - would you refinance and if so, at what term?

If I have forgotten any relevant details, please let me know and I will add.

Thanks for any advice.
Rest of the portfolio? Tax basis in taxable?
John Doe 123
Posts: 138
Joined: Tue Dec 23, 2014 2:48 am

Re: Thoughts on Potential Mortgage Refinance?

Post by John Doe 123 »

You can refinance to a 15-year fixed with no closing costs and still get a much lower rate. That may be a good option for you think you may want to pay this off in the next several years.

Look into lenderfi.com or better.com no cost refinance.
Outer Marker
Posts: 1976
Joined: Sun Mar 08, 2009 8:01 am

Re: Thoughts on Potential Mortgage Refinance?

Post by Outer Marker »

SomeGuy99 wrote: Fri Jun 18, 2021 7:22 pm So - THE QUESTION - would you refinance and if so, at what term?
If you don't have the cash on hand to pay it off immediately, then refi to a no cost 15 year term.

Do not pay any "upfront costs" and put any of your own money into this loan. You should be able to get a 15 year at around 2.75% with around $1,500 in lender credits to pay for the closing costs and appraisal fee. (Disregard prepaids and excrows, since you get those back from the prior lender). Check rates with AmeriSave and Loan Depot. Those tend to be among the most competitive.
Golf maniac
Posts: 840
Joined: Wed Dec 27, 2017 2:02 pm
Location: Florida

Re: Thoughts on Potential Mortgage Refinance?

Post by Golf maniac »

Outer Marker wrote: Sat Jun 19, 2021 8:08 am
SomeGuy99 wrote: Fri Jun 18, 2021 7:22 pm So - THE QUESTION - would you refinance and if so, at what term?
If you don't have the cash on hand to pay it off immediately, then refi to a no cost 15 year term.

Do not pay any "upfront costs" and put any of your own money into this loan. You should be able to get a 15 year at around 2.75% with around $1,500 in lender credits to pay for the closing costs and appraisal fee. (Disregard prepaids and excrows, since you get those back from the prior lender). Check rates with AmeriSave and Loan Depot. Those tend to be among the most competitive.
+1. Also look at Aimloan.com for a no cost option.
mceagle555
Posts: 82
Joined: Mon Aug 31, 2020 12:41 pm

Re: Thoughts on Potential Mortgage Refinance?

Post by mceagle555 »

I personally would go for a true no-cost (meaning, no out of pocket expense at closing) refinance.

I'm on my 4th refi this year and have walked away from closing each time lowering my rate by at least .125% and with ~$2k in profit.

Basically follow this guide: https://frugalprofessor.com/better-com-refi-review/

Also take a look at the big refinance thread here in the BH forums. Look for posts by myself or BrandonBogle within that thread.
User avatar
BrandonBogle
Posts: 4014
Joined: Mon Jan 28, 2013 11:19 pm

Re: Thoughts on Potential Mortgage Refinance?

Post by BrandonBogle »

mceagle555 wrote: Sat Jun 19, 2021 9:55 am I personally would go for a true no-cost (meaning, no out of pocket expense at closing) refinance.

I'm on my 4th refi this year and have walked away from closing each time lowering my rate by at least .125% and with ~$2k in profit.

Basically follow this guide: https://frugalprofessor.com/better-com-refi-review/

Also take a look at the big refinance thread here in the BH forums. Look for posts by myself or BrandonBogle within that thread.
:D
:sharebeer
Post Reply