| skittles |
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Looking for a some financial advice here. I'm not very good in all this and could use some insight. Here's the situation: I currently owe 148k on my 15 yr loan at a rate of 3.375 (14 yrs to go). My monthly payments are 1,107 without property taxes involved. (Interest paid through life of loan was roughly 43k) If I'd go back to a 30 yr mortgage, I'm figuring I could safely get a 4.000% rate on 148k. My payments are $707/ mth. (Interest paid is roughly 106k). My wife and I are doing okay with our 15 yr loan and have not had to sacriffice our lifestyle but we have not been able to put anything away into savings besides what's going into our 401k's through our employer. My question is would it make sense to invest the extra $400/ mth in savings from a 30 yr mortgage? With the interest I'd be paying, it should keep me in a lower tax bracket longer. I'm in a 15% bracket currently. Can I make up 66k in loss from interest by putting $400 into savings over the course of the loan? What is a safe percentage on return? I'm 34 yrs old and plan on staying at the home for at least 15 yrs. The only debt we have is our mortgage and a car payment ($9,000). Suggestions? |
| iz984z |
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The only thing you need to remember is, "I'm not very good at all this..." For example, 106K - 43K = 63K not 66K. You might well have the 106K and 43K calculated wrong as well. Look someone convinced you to refinance once and made money by talking you into it, don't keep refinancing and paying. I'm 14 years ahead of you and there is nothing better than not having a mortgage. |
| ColoradoSteve |
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Do not refinance for a higher rate and duration!!! Don't believe the Madison Avenue lie about "What payment you can afford" The only thing that matters is the rate-Keep the 15 year. Pay an extra hundred or two every month. Turn it into a ten year loan. Debt is slavery. Small house, no mortgage. Gives you a lot more time and energy for running and skiing. Ignore tax deductions-they too are a Madison Avenue lie. You and your wife get an 11 grand standard deduction. 150,000 times four percent is only 6 grand-sure you can deduct property taxes and stuff-but I bet you won't get too far above the 11 thousand they give you already. There's no better feeling than a free and clear house at 44-and you can be in that position if you don't screw it up. They're selling it to you because it benefits them-not you. |
| skittles |
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bumping for other thoughts |
| Flagpole |
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Oh man, just 14 more years away from not having a mortgage; mortgage free by age 48! I'd keep it at that 15-year loan. As you get raises, put ALL of the new money into retirement accounts. Get rid of that car loan as soon as you can and then even accelerate the payments toward the house OR invest that difference. I would also consider sacrificing your lifestyle a LITTLE. Sometimes people do things out of habit and realize they don't miss it when it's not there anymore. Really look at the stuff you spend money on and see if it's really important to you.
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| Yeah, but |
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Let's be honest. You're just gowing to blow the extra $400 aren't you. |
| keep your loan |
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You haven't accounted for increases in income. Keep the 15-year loan. In a few years you will be able to put money away for retirement. In the meantime you'll be on the fast track to paying off your load. By the time you retire you'll have a home free-and-clear and money in the bank. |
| X-Runner |
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Yes, you should be able to beat the interest payments that you will be gaining and come ahead with a 30 year mortgage vs a 15. It would have been nicer to come to that conclusion last year before you signed up for 15. This would be more closing costs. With a 30 you can always pay more to pay it off sooner. With a 15, you can't pay less if you get in a jam. It all depends on what you do with that extra cash on hand but the math normally favors 30 year mortgages. Those that push for paying it off early mearly like the psychological advantages to being out of debt even if it means less cash on hand or lower investment returns. |
| DontFeedTheTroll |
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It absolutely would not make sense. You are probably not going to be able to make up the difference by investing the money independently because the lenders have already done that math and that's why they are making you that loan. This will depend on your location, but 15 year conforming loans where I am are running at 3% with a rebate. Can't you refi to a lower interest rate at 15 years? |
| 26mi235 |
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So, you want to pay 1500 up front and then a number more dollars each month thereafter in interest just to postpone when you pay that interest just so that you might save more in a different account (and, with better cash-flow, maybe it will just be easier to spend more)? For an economist, Savings = Earnings - Expenditures. Mortgage payments are NOT expenditures, they are a payment scheme for an expenditure. Your expenditure is for the 'user cost of housing', which is going to be the same either way (you are consuming the same housing, just with different loan arrangements). Thus, when you are making higher loan payments because the maturity date is different, you are putting money 'away' (not spending it) and so it is in a form of savings -- lower debt. Thus, Lower Debt and Higher Savings are exactly the same thing. Furthermore, if you are paying off the load more rapidly, you will have greater flexibility in relocating when and if such a situation arises. On the other hand, you will have 'easier' cash-flow and so might be less constrained on some things so that you can take a longer view; this is not too large because you can always use the accumulated equity as a basis for easier borrowing. As for tax brackets, it is a bit misleading, as you do not switch all of your earnings to the new bracket, just the difference in net income will be taxed at potentially different rates, and since the difference in interest payments is not that large, it is only the modest difference that MIGHT go across that line that would draw the higher tax rate. Almost certainly a minor issue, but one that your profess 'not good at this' is likely to confuse you on. In addition, sometimes the real factor is that level of AGI -- adjusted gross income, and this will be the same right now and will rise as you put money into an account that then earns either interest or direct earnings that will be taxed. Bottom line. Very unlikely to be a good idea; beware of who might be telling you to do this. the only thing you really cite is a misconception on the nature of investments and savings. Note; on several occasions I have recommended that people refinance, as the refinance costs are not really that high compared to the savings flow from doing so. In your case, however, the savings flow is Negative. |
| codger |
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Not him....but his wife will. |
| Howard and the Running Monkey |
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Not him....but his wife will.[/quote] he is married, there is no blowing going on. 26m235 got it right |
| skittles |
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If I would switch to a 30yr loan, the extra $400 would be going straight to a savings plan so I will not see it anyways. I'm working with a financial advisor and he is recommending I switch to a 30 yr mortgage. He insists that if I put that extra $400 away, I'll be able to come out ahead by 132k by the end of the term. He's banking on 5% interest savings. Is that reasonable? For those that follow Dave Ramsey, he talks about getting 10% or higher returns in mutual funds. I'm not sure if the finanical advisor will eventually get to that point but we have only had three meetings. He's been big on getting protection coverages first. I haven't had to pay him anything yet and he insists that I will not have to; all i need to do is get his name out and give out recommendations. I think he does make some profit from selling disability and life insurance but can't see that making me worth his time even if I'd go forth with it. Are finanical advisors typically truthworthy or can they really screw you over? I've been very cautious through all this so far but some of his recommendations make practical sense. How he's planning to handle my money in investments is my concern. My wife and I current combined income is 75k, which is nothing great but respectable in our area (PA). |
| X-Runner |
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Honestly, anyway you go you will be OK. If you stick with what you have it is a conservative approach that can't go wrong. Or -The refi frees up some cash so you can put it to work and hopefully get more out of it. A bit higher risk which could yield a higher return. It's all about your comfort level. You seem disciplined so you would likely stick it out with the savings/investing plan. But you don't sound comfortable about it since you are asking around. As a random internet adviser, I would say to go for it and try to get more bang for your buck. If I really knew you, I would say to stay with what you have unless you felt really good about your other options. |
| gc |
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I edited your comments to highlight a few points.
I'm retired, but I've held one of the major financial planning professional designations for 29 years. Here's my take. Stay with the 15 year mortgage. Pay off your car as quickly as possible. Then, you can invest the car payments with your financial advisor if you wish. I could probably talk for 10 minutes on why this is the better approach, but here's a few of the key points. In 14 years, you will OWN your house. That's not an investment. It's security. It's yours. It's flexibility. In 14 years, you can begin investing $1,107/month. In 16 years, the future value of that investment would be about the same as $400/mo invested over 30 years. Yes, the $400/mo would be slightly greater, but we're talking about 30 years. There are too many uncertainties to assert that one savings plan is significantly better than the other. In 14 years, you will be 14 years smarter when it comes to investing. Don't discount this point. You will also have several years of real world investing experience from the former car payments you've been investing. The $400/month "savings" will NOT stay saved. At some time in the future, life happens. Your kid will need a car... your wife will want to renovate the kitchen... you will desperately want a boat or a Harley or some other mid-life crisis toy. It will seem perfectly rational at the time, but at least some of the "savings" will get spent. Trust me on this. I don't know your advisor, but financial advisors who do not charge a fee are typically compensated by loads (commissions) on sales of mutual funds and life insurance products. That's not a bad thing; it's just something you should be aware of. The prospectus of a mutual fund will disclose advisor commissions. Insurance products don't typically disclose commissions, but it's usually in the range of 40%-80% of the first year's premiums. This is a legitimate way of doing business, but it should be disclosed to you by the advisor by now if you have had three meetings. Reputable financial advisors will inform you prior to investing that they receive commissions on the products they sell. |