15 year vs 30 year refi

[Kev Williams]

the short version: we need to refi plus cash out-
15 years 2.5% payment $1334
30 years 2.875% payment $830
difference: $504

question: how to calculate the difference between adding $504 to the $830, or just paying the $1334?

Obviously the higher rate will take longer than 15 years, but how much longer?

[Richard Baxter]

No but I have a bridge for sale.

[John K Jordan]

You can use a calculator with financial formulas (been so long I can't remember the details), make a spreadsheet (what I did last time), ask your bank or mortgage company to calculate it for you, or use one of the on-line calculators.

Dave Ramsey's calculator lets you calculate the payback amount without paying any extra each month, then add the extra to see the difference. To compare the 15 vs 30 at different interest rates I'd write down the numbers for the 15 year scenario then repeat the calculation for the 30 year case and apply the extra amount in step 2.
https://www.daveramsey.com/mortgage-payoff-calculator

Maybe make sure your lender doesn't have an early payoff penalty. Mine didn't (maybe because the interest rate was the same regardless of the time period) but I hear some do, or at least used to. Sure is nice to have everything paid off.

JKJ


the short version: we need to refi plus cash out-
15 years 2.5% payment $1334
30 years 2.875% payment $830
difference: $504

question: how to calculate the difference between adding $504 to the $830, or just paying the $1334?

Obviously the higher rate will take longer than 15 years, but how much longer?

[Bill Dufour]

I paid about 100 a month extra towards our loan. At first I wrote checks then did it online. With checks I put a memo "extra to principa. When I paid the loan off they said I had an extra 3,000 in payments in my account. They never paid the principal down with the online payments. Bunch of crooks, PNC Bank.
Bill D

[Kev Williams]

Bill, ouch!

[Lisa Starr]

Kev,

The 30 year mortgage will cost you about $59,000 in extra interest over the 15 year.

We've found that our best option over the years has been to go with the longer term. If you dealing with a credit union, ours was very willing to take an automatic payment each week and credit it each week as well. That alone knocked a couple years of the loan. Anytime either of us received a raise at work, 50% of the increase was immediately added to our payment amount. In the end, we paid off a 30 year mortgage in just over 17 years.

[John Stankus]

Bankrate.com has an additional payment calculator (and there are several others out on the internet)

https://www.bankrate.com/calculators/home-equity/additional-mortgage-payment-calculator.aspx

The trade off comes down to balancing whether minimizing total interest paid vs. flexibility in cash flow is more important to you. The 15 year note minimizes total interest, the 30 year with extra to principal allows for a lower payment if there are some months where that extra $504 is too much to spare out of the budget.

John

[Malcolm McLeod]

John's link will show the 'how'; 90sec. Excel-session says the 'accelerated' 30-yr mortgage will take 186 months (payments) - - +/- a month or so for compounding, fees, fines, and bribes.

[Ron Selzer]

I refi'd into a 15 yr for a few years and then changed jobs not by my choice at which time i refi'd into a 30 again. interest rate dropped each time, i was very lucky. The few years I was on the 15 yr sure dropped the balance. Finally paid it all off, now time to catch up on defer'd maintenance as that money was put towards principal for early payoff. Have to figure out works for you at that time in your life and roll with it.

good luck
Ron

[Kev Williams]

Thanks for the responses, much appreciated!

So the reason I'm asking: We have a granddaughter, fiance and their 3 year old, our great grandson. Back in December he and some fellow employees managed to tip over a massive air compressor they were trying to move, he broke it's fall, saving the compressor from much damage. He wasn't so lucky, his spine was severely fractured and his spinal cord severed. Wheelchair for life. They're both 22 years old. After 6 weeks of hospital and PT workman's comp moved them into a hotel suite, temporarily. They were told in June the hotel stay needed to end, they need to find a [cheaper than $3000/month] place to move. Apartment hunting went badly even with the wife trying to rent a place herself. Other family members aren't much help. We know their financial status, paying for shelter isn't a problem. So, since we've been doing this for 13 years, we decided to do 'this' again, which is: buy a mobile home as a rent-to-own 'investment'. And the best way to do this is to re-fi our home for the money. Turns out I forgot about our refi 9 years ago, so we're still 21 years out on our current loan. (I was thinking we had 16 years left)...

Since we're on the verge of (semi) retirement, and we're almost out of debt aside from our home (which is also our business), after reading your comments above I've pretty much decided on going with the 30 years. The kids will be making us payments on their part of the loan, which will cut our current house payment in half. And after borrowing enough to buy the mobile outright, we'll still have around $125k equity that will only increase as time goes on. We have friends renting-to-buy our other mobile which has been great for all of us- and it's actually gone up in value since we bought it. Fiance's lawyers are negotiating a settlement, if/when that happens their plan is to pay for the mobile outright. And even if things go totally south and we're 'stuck' with the new one, it's not a big deal because we've been considering getting another place to live in a few years anyway. Our engraving business has swallowed this place, not much 'home' left. The commute now is great ;) but in a few years when we'll only be working for about 5 customers, it would be nice to get out of here every night :) Also, my SS payments kick in this month, so that adds some cushion.

So that's why I was wondering about doubling pays on a 30 year. So if the plans all goes perfect, in a few months they'll pay us to buy it, and our mortgage balance will be the same as it is now, or it'll be banked, either way, more money to buy diesel for the motorhome and gas for the boats :D -If all goes horribly bad, the worst case is we have our second home in place...

[Jeff Body]

All I want to know is, How on god's green earth are you going to pass an inspection with all that stuff going on? Don't you have to have an inspection done to refinance?

My homeowners insurance agent wants to get me into a different company because my current insurance has gone up in price alot.
But to do this it'll require an inspection. I've need putting it off because I've got some questionable upgrades dealing with the laser. But nothing like what you've got going on.

[Brian Elfert]

All I want to know is, How on god's green earth are you going to pass an inspection with all that stuff going on? Don't you have to have an inspection done to refinance?


A home refinance would typically require an appraisal, not an inspection. Appraisals are typically looking to verify dimensions, number of rooms, and overall condition. They don't so much care if the place is a bit messy and not clean.

If you have enough equity the appraisal might be waived although a cash out refi makes that less likely.

[Kev Williams]

What Brian said :) - Our home just needs an appraisal, the mobile we're buying needs an inspection...

[John Goodin]

Kev, Home equity loan rules vary from state to state so all advice here may not apply to your situation. You may not need an appraisal. If allowable your lender may be able to pull your home value from the tax rolls. This is usually possible when your refinanced amount will be significantly less than the home's value. This would save you a few hundred bucks in closing costs.

I have done about a dozen home purchases, refis and home equity loans in Texas. If you live in Texas I can provide more state specific information if needed.

[Ron Citerone]

[QUOTE=John Stankus
The trade off comes down to balancing whether minimizing total interest paid vs. flexibility in cash flow is more important to you. The 15 year note minimizes total interest, the 30 year with extra to principal allows for a lower payment if there are some months where that extra $504 is too much to spare out of the budget.

John[/QUOTE]

That sums it up in my mind.

[mike stenson]

Kev, Home equity loan rules vary from state to state so all advice here may not apply to your situation. You may not need an appraisal. If allowable your lender may be able to pull your home value from the tax rolls. This is usually possible when your refinanced amount will be significantly less than the home's value. This would save you a few hundred bucks in closing costs.

I have done about a dozen home purchases, refis and home equity loans in Texas. If you live in Texas I can provide more state specific information if needed.


This is how my house was appraised in March. Then the lender sat on it until the credit check expired, which is a good thing for me as interest rates have dropped. FWIW, the lender still charged me the appraisal fees, and I won't ever be dealing with them again.

[Kev Williams]

Thanks for the replies everyone! :)

So we made an offer, it was accepted, contingent on the buyer getting their money in 30 days. If not, we're in default, lose our earnest $, and possibly the mobile to a higher offer. Credit Union sez it'll take 45 days. Arrggh..

Realtor we're dealing with has a favorite go-to mortgage company, had a talk with them today, and uploaded another loan app and all the other paperwork. FWIW, appraisal is required by both so no saving that 5 bill$ ;)

CU app is on hold for now. I love my CU, and so does everyone apparently, very busy. They're pretty popular around here.

Rates are the same EXCEPT, the CU offers an 1/8 point off but comes with discount points and more closing costs. The MoCo doesn't offer the 1/8 reduction but less out of pocket. Payment is about $12 different so not hardly a deal breaker. Closing in 3 weeks likely, and 'practically' guaranteed within 30 days. If push comes to shove, I CAN get enough cash together to fend off default.

So aside from the long closing snafu, things are progressing nicely. Very nicely, actually-- as with every other refi we've ever done, we're pulling a bit of extra out to pay off a couple of loans, the payments of which are more than our current mortgage payment. Yeah, I know, paying interest for 30 years on a few bucks isn't the best financial move, but at least it's LOW interest :D - AND, I just got my SS approval letter yesterday. Mo money! And with that I'm going to inquire with the SSA about eliminating our self employment taxes (which their paperwork indicates is do-able, if I read it right)... So what started out a few days ago as a bit of a spooky ordeal to help out some family, when all the numbers are crunched- lower mortgage payment, new SS money, zeroing out 2 bills, and keeping our SE tax for ourselves, our take-home pay will increase over $4k per month-- works for me!

And yeah, I know most of this windfall has nothing to do with acquiring housing for the kids-- but who cares? ;)

[Wade Lippman]

Kev,

The 30 year mortgage will cost you about $59,000 in extra interest over the 15 year.

We've found that our best option over the years has been to go with the longer term. If you dealing with a credit union, ours was very willing to take an automatic payment each week and credit it each week as well. That alone knocked a couple years of the loan. Anytime either of us received a raise at work, 50% of the increase was immediately added to our payment amount. In the end, we paid off a 30 year mortgage in just over 17 years.

If 15years is a lower interest rate then 30years, wouldn't you have saved even more with a 15 year mortgage?

[Jason Roehl]

If 15years is a lower interest rate then 30years, wouldn't you have saved even more with a 15 year mortgage?

She probably would have, but having a 30-year loan gives people cash-flow flexibility in case of a loss of income. Make double payments (extra to principal) from the start, then if there's a change in job status for a few months, you can pay just the regular payment. I seem to recall calculating it as about 10 years to payoff (but don't quote me on that) with double payments on a 30-year mortgage.

[Kev Williams]

Just did a calculation, $200k loan 3% 30 years, payment is $842, adding $842 each month will pay off the loan in 11 years 7 months...

Same amount at 2.8% for 15 years, payment is $1362, a difference of $520... now add that $520 to the 30 year payment, and the loan will pay off in 15 years 4 months-- nearly a wash...

[Jason Roehl]

Just did a calculation, $200k loan 3% 30 years, payment is $842, adding $842 each month will pay off the loan in 11 years 7 months...

Same amount at 2.8% for 15 years, payment is $1362, a difference of $520... now add that $520 to the 30 year payment, and the loan will pay off in 15 years 4 months-- nearly a wash...

So what is the payoff time on the 15-year loan if an extra $322 is paid per month (the difference between a double payment on the 30-year, and the payment on the 15-year)?

[Wade Lippman]

Just did a calculation, $200k loan 3% 30 years, payment is $842, adding $842 each month will pay off the loan in 11 years 7 months...

Same amount at 2.8% for 15 years, payment is $1362, a difference of $520... now add that $520 to the 30 year payment, and the loan will pay off in 15 years 4 months-- nearly a wash...

4 payments of $1,362 is $5,200. Not really a wash.

[Kev Williams]

ok, maybe not "nearly", but $5200/15 years is $28.88 a month-- many people's credit card interest is higher than that. Just sayin' :)