OT: Current Refinance Rates

[ckDOG]

Refinancing the home from 30 year note to 15.

Have a quote from my existing lender - Stated Interest Rate: 1.75% APR works out to 2.366%. Should be saving 115k loan vs loan.

I'm very happy with my current lender and the process to get this done is going to be very simple (knock on wood) and likely knocked out before the end of the year. So there's some intangible value staying with current lender as well.

Question: take that and run with it or keep looking because I'm leaving good money on the table?

Full disclosure: Ran the numbers on refinance vs invest lower payments. Market would have to be pretty hot over 15 years and I'm more in this for the psychological benefit of paying off my mortgage when my daughter graduates high school.

 

[PuebloDawg]

Never pay off your mortgage with those interests rate. It’s silly. Throw the extra money into a mutual fund, become a slumlord, invest in bitcoin. But don’t pay off your mortgage. That’s poor man thinking.

 

[aTotal360]

Geez man. With rates so low, go with the lender that actually picks up the phone. The difference in money will not be missed. If you want rock bottom money, go with Quicken or BoA or Wells Fargo and enjoy the **** process.

 

[dorndawg]

Geez man. With rates so low, go with the lender that actually picks up the phone. The difference in money will not be missed. If you want rock bottom money, go with Quicken or BoA or Wells Fargo and enjoy the **** process.

Can confirm.

 

[ckDOG]

Thanks.

Never pay off your mortgage with those interests rate. It’s silly. Throw the extra money into a mutual fund, become a slumlord, invest in bitcoin. But don’t pay off your mortgage. That’s poor man thinking.

Full disclosure: Ran the numbers on refinance vs invest lower payments. Market would have to be pretty hot over 15 years and I'm more in this for the psychological benefit of paying off my mortgage when my daughter graduates high school.

Considered that, Pueblo. Hence my full disclosure statement.

ETA: Payment with new mortgage is about $350 more / month. If I invested that for the 15 years @ 10% return, I'm at about $146k. Then let that $146k accrue until the end of original note (about my planned retirement age, but maybe not if market really gets 10%), I'm at $437k. If I refinance and invest my current note beginning 15 years from now when I have zero mortgage payments and assume that gets the same 10% return to end of original mortgage, I'm at $353k. So I'm leaving $85k on the table, assuming 10% plays out evenly over time. So basically, I'm just going to have to bargain harder when I buy the Class A RV to pay for the happiness knowing I own my house so much earlier.

However, if I were to only get 6% in the scenario above, flip it and investments are $77k better off refinancing. Then there's also the chance that the "don't refinance" scenario has a low rate of return in the earlier 15 years and the market blows up in the latter half and now I'm really in the money.

All that said, I can't predict what happen, so I'll control what I can control and be happy with the early pay off with possible upside if the market isn't as hot as it has been last few years heading into the golden years.

 

[ckDOG]

That's what I wanted to hear.

Geez man. With rates so low, go with the lender that actually picks up the phone. The difference in money will not be missed. If you want rock bottom money, go with Quicken or BoA or Wells Fargo and enjoy the **** process.

Thank you.

 

[Smoked Toag]

Smart man. Go with the current lender. You already know the reasons for paying off the home:

1) What are the REAL chances you're going to take that money left over from your lower payment and ACTUALLY invest it? Everybody says they will be no one does it.
2) You just stated how much you will save, not to mention that once you pay off your house, you have eliminated all debt risk (I assume).

The only thing I would add is make sure you can still truly afford the 15-year payment. With these rates, you're never going to get a better opportunity to have such a short mortgage AND a low payment. The actual rate doesn't really matter, so use your current lender.

 

[Mobile Bay]

Never pay off your mortgage with those interests rate. It’s silly. Throw the extra money into a mutual fund, become a slumlord, invest in bitcoin. But don’t pay off your mortgage. That’s poor man thinking.

Mine is paid for and no amount of money in the bank can replace that.

 

[horshack.sixpack]

I did Quicken one time on a refi years ago. It was easy.

 

[CoastTrash]

deleted

 

[aTotal360]

I deal with Quicken loans all the time. Odds are the process will suck. And suck hard. All the big banks typically suck when it comes to hitting the timeframes within a contract. To your point, a refi is a little different because you aren't competing with anyone. That being said, I still wouldn't trust them to get a competent appraiser, especially in a growing rural market where comps are lacking.

With that being said, no lending institution is as bad as Navy Federal.

 

[PooPopsBaldHead]

I did 2 with Quicken (now Rocket) in the last few months, because everyone local was overwhelmed. One was new construction and the builder had all kinds of **** not finished at inspection, but both went smooth as gravy. Title company said it was the easiest closing of the year on the new construction. Everyone was shocked.

From my end I just linked all of my bank/investment accounts, uploaded paystubs, and tax return. They reached out on their own to realtors, title company, and insurance. I just got notices on an app when I need to review something and I handled every bit of it from my phone. It was by far the best experience I have had purchasing or refinancing.

 

[wsjmsu75]

Mine is paid for and no amount of money in the bank can replace that.

Agree. It was like an 800 pound gorilla came off my back the day I made the last payment.

 

[msudawg12]

Take it and run.

but dont expect it done by the end of the year unless you're going to throw some extra cash at an appraiser. Appraisal likely wont happen until mid january or february at this point

 

[Dawgbite]

Pay that mortgage off as quickly as you can. Once you own your home never buy anything you can't pay cash for. You will completely reevaluate your spending practices.

 

[dickiedawg]

When I did mine last year we got the appraisal waived, but my LTV was pretty low.

 

[onewoof]

Agree. It was like an 800 pound gorilla came off my back the day I made the last payment.

Financial decisions should always be made based on personal emotions and feelings

 

[wsjmsu75]

Financial decisions should always be made based on personal emotions and feelings

The fact that I got my house paid for before retirement is what enabled me to retire. That is a fact, not "personal emotions and feelings". MYOB.

 

[Grove Sh*tter]

Financial decisions should always be made based on personal emotions and feelings

It's hard to quantify the feeling of peace, but it is worth considering when making financial decisions, IMO

 

[Mobile Bay]

Financial decisions should always be made based on personal emotions and feelings

Quality of life decisions should always be made on numbers alone.

 

[ckDOG]

Feelings are part of investing.

Financial decisions should always be made based on personal emotions and feelings

Risk tolerance is a feeling. I don't want to have to beat 8% in making a decision that is deemed successful. Could I? Sure. But a good chance I don't. So - I'll take a a reduction of 115k or so in cash out the door financing a home bc that feels safest to me and what my goals are (too long to list here).

Unless you want to sign a piece of paper that guarantees me a certain rate of return over 25 or so years. If you can, make me an offer.

 

[PooPopsBaldHead]

Did you run the numbers based on a new 15 year refi vs your old 30 year or a new 15 year refi vs a new 30 year refi? For the record, I think you sound really happy paying off early and should do so. But that doesn't have to be a 15 year.

My advice, explore flexibility. Think about doing a refi into a 30 and set up the payment to make up the difference between that and the 15 as an extra payment. If it's only $350 a month on a new ,30 it's prolly not worth it, but I am guessing you might be looking at $500+ on a new 30 year refi.

Paying the extra towards principle gives you the opportunity to cut your mortgage payment if need be in case of tough times. Or maybe you decide you need to turn it into a rental down the road, it's a lot of easier to cover that 30 year note vs a 15 with rental income.

So assuming a 3% apr on a 30 yr refi and 2.2% on a 15 year on a $300 k mortgage, you are looking at $700 a month difference in the mortgage rates. If you put that $700 toward an extra payment on the 30 year, you pay the home off in 16 years vs 15 years. Total interest is $73k vs $55k. So it's not quite the return, but you have a lot more flexibility if you need it.

Al in all, it's more about your comfort level. I never consider your primary home an investment so I'm not going to make arguments about using leverage. My thought though is it's not debt on an appreciating asset, it's leverage. Debt is borrowing money you don't have for something that will be worth less tomorrow than it is today. I pay cash for cars and use mortgages on real estate. But, when I get close to retirement, I sure as hell don't want a mortgage on my personal home.

 

[RBDog82]

I’m retired at 39 because I’ve borrowed at low rates, invested in rentals, and invested the difference in stocks. Not sure I will ever pay off my loans. Math wins every time.

 

[paindonthurt]

I get it. Some won’t but it’s a risk tolerance thing.

 

[wsjmsu75]

I’m retired at 39 because I’ve borrowed at low rates, invested in rentals, and invested the difference in stocks. Not sure I will ever pay off my loans. Math wins every time.

Yep. Zero debt = Zero stress. I'll take that math.

 

[ckDOG]

Scenario

Did you run the numbers based on a new 15 year refi vs your old 30 year or a new 15 year refi vs a new 30 year refi? For the record, I think you sound really happy paying off early and should do so. But that doesn't have to be a 15 year.

My advice, explore flexibility. Think about doing a refi into a 30 and set up the payment to make up the difference between that and the 15 as an extra payment. If it's only $350 a month on a new ,30 it's prolly not worth it, but I am guessing you might be looking at $500+ on a new 30 year refi.

Paying the extra towards principle gives you the opportunity to cut your mortgage payment if need be in case of tough times. Or maybe you decide you need to turn it into a rental down the road, it's a lot of easier to cover that 30 year note vs a 15 with rental income.

So assuming a 3% apr on a 30 yr refi and 2.2% on a 15 year on a $300 k mortgage, you are looking at $700 a month difference in the mortgage rates. If you put that $700 toward an extra payment on the 30 year, you pay the home off in 16 years vs 15 years. Total interest is $73k vs $55k. So it's not quite the return, but you have a lot more flexibility if you need it.

Al in all, it's more about your comfort level. I never consider your primary home an investment so I'm not going to make arguments about using leverage. My thought though is it's not debt on an appreciating asset, it's leverage. Debt is borrowing money you don't have for something that will be worth less tomorrow than it is today. I pay cash for cars and use mortgages on real estate. But, when I get close to retirement, I sure as hell don't want a mortgage on my personal home.

It was 15 year vs what was left on existing 30 year (26 years). I'm going to run the numbers on a refinanced 30, but there really wasn't much spread between existing rate and market surprisingly. I doubt it makes a big difference, but I'll still look at it.

Definitely agree with flexibility and comfort though. For me, I have enough cash and investments to pay off the note should **** go south (or sell and downsize would be an option as well if I felt a long term pinch). Mortgage money is so cheap I don't want to take my invested cash and put it into a house that's probably overvalued in a real estate bubble (probably why there's a bubble in the first place - but I'm not planning on moving for a long time so whatevs)

 

[ckDOG]

Well done.

I’m retired at 39 because I’ve borrowed at low rates, invested in rentals, and invested the difference in stocks. Not sure I will ever pay off my loans. Math wins every time.

What does the math say if the bottom falls out of the real estate market? What's your backstop?

 

[RBDog82]

What does the math say if the bottom falls out of the real estate market? What's your backstop?

I’ve got ~30% equity in my consolidated real estate portfolio and ~50 months worth of loan payments in cash/taxable brokerage accounts. I also feel very comfortable with the markets I’m in.

 

[RBDog82]

Yep. Zero debt = Zero stress. I'll take that math.

To each their own. I don’t like leaving money on the table, but I understand I’m in the minority.

 

[ckDOG]

Excellent

I’ve got ~30% equity in my consolidated real estate portfolio and ~50 months worth of loan payments in cash/taxable brokerage accounts. I also feel very comfortable with the markets I’m in.

I'm too risk averse to do anything like that, but sounds like you are in a good spot to weather some bumps should they happen. Good for you.

 

[RBDog82]

I'm too risk averse to do anything like that, but sounds like you are in a good spot to weather some bumps should they happen. Good for you.

I’ve heard a lot of my friends say the same thing. My response is it depends how you measure risk. If it’s definition is the variability of returns, then I’d argue my rental portfolio has a lower beta than the stock market. All of my tenants paid during COVID, while my equity investments got kicked in the nuts. By that definition of risk, my real estate was lower risk than my stocks. Again, to each their own though. More than one way to grow your wealth for sure.

 

[PBDog]

I’m retired at 39 because I’ve borrowed at low rates, invested in rentals, and invested the difference in stocks. Not sure I will ever pay off my loans. Math wins every time.

This guy knows how a business works. Good advice that most people won’t take and instead work for the man for 40 years and a small retirement. Enjoy being rich sir!!

 

[ckDOG]

Depends though

This guy knows how a business works. Good advice that most people won’t take and instead work for the man for 40 years and a small retirement. Enjoy being rich sir!!

If I were to go back to my early 20s and commit to a leveraged real estate investment strategy, I'm not sure I would have been able to acquire the loans necessary to build one - even assuming I was savvy enough to make good market selections and was good at finding high quality tenants. I wasn't in debt, but I had no cash - just education and a job. It was hard enough getting approved for a low money down mortgage on a very modest home. Not sure how I would have gone about getting loans for investment real estate.

Not saying it's impossible start from scratch or that the original poster had any help, but I think it goes back to the saying "takes money to make money". I could probably start something today I suppose, but I'm probably better off focusing my energies on what's worked to this point.

 

[PooPopsBaldHead]

Yeah. Recency bias makes us think the next bubble will be the same as the last. That's never the case. There may be modest price corrections in the next year or two in some markets, but the quality and quantity of homes loans given out in the last few years are light years better than the crap from 2000-2006.

Bubbles are created by oversupply. That is the exact opposite of what we have going on right now and there is no realistic opportunity to outbuild demand due to supply and labor constraints.

Home prices will not gain 20% next year nationally, but they will still probably grow faster than the 3% historic rate. Owning real estate in 2020 and 2021 was a once in a lifetime opportunity. We are not facing a housing crash anytime soon. Even if we were, the Fed will never let it happen.

 

[was21]

Time is money. Age and health figure into quality of life without debt. For some, paying off a mortgage provides quality life freedom.

 

[RBDog82]

I definitely erred on the side of fewer, high quality rentals versus more low quality rentals. Regarding takes money to make money…I’ve always said it takes access to money to make money. You can find local banks willing to take a higher LTV than even regional banks. This obviously assumes good credit as well. For our first rental I actually did a HELOC on my primary residence and then refinanced it into a traditional 30yr product a few years later. Really enjoy topics like this because I think about this stuff way too much.

 

[ckDOG]

How much interest rate risk is there?

Out of my element here, but I enjoy your takes in finance. My general thought is that money is so
cheap that there's no possible way that real estate values aren't propped up significantly bc of it. But how much? How much does a market get impacted if these 2% rates go back up to 4%+ or higher? No way as much as the big reset in '08. And if course that increase would occur over time and not suddenly. Still seems impactful though...

 

[RBDog82]

Out of my element here, but I enjoy your takes in finance. My general thought is that money is so
cheap that there's no possible way that real estate values aren't propped up significantly bc of it. But how much? How much does a market get impacted if these 2% rates go back up to 4%+ or higher? No way as much as the big reset
in '08. And if course that increase would occur over time and not suddenly. Still seems impactful though...

IMO 4% rates are still cheap. I’d still be borrowing until they bumped up to around 6%.

 

[PooPopsBaldHead]

Interest rates have less if an impact on affordability than down payment when it comes to purchasing a home.

On a $300k mortgage, bumping the rate from a 3.25% to 4.25% rate on 30 years makes a $150 a month difference in the payment. It's going to be a good while before mortgage rates move that much. Current long range forecasts keep mortgage rates under that level through at least 2024. What is happening though is pay raises. A hell of a lot more than $150 a month as well.

I always use the carousel example to explain housing. When you are on a spinning carousel, there it's perfectly safe to move from horse to horse. If you are on the sidelines when it is moving, you will get hurt when you try to jump on a horse.

When you own a home and the market appreciates 20%, so does your equity. So when we are talking about affordability, it's that 35% of the country that doesn't currently own a home. If they have to use an FHA loan that makes a lot bigger difference than a full percentage point of interest rates.

 

[Cooterpoot]

Refi to 30. Insure it and burn it when you want out. Be sure to maintain "fake life keepsakes" to replace you real goods, so nobody knows you burn it. You screw the bank and the insurance company.