I am in the process of refinancing. I can get a 7.0 with no points/orig fees today. Should I see if it goes down to 6.75 or so, or lock now? Where do ya'll think the rates are going over the next couple of months?
Lock it in, this is like the lowest rate since the 1950s. I got ours at 8.5% and then refinanced at 7.125, and we are quite happy. I would lock it in. DD
Lock it in!!! Rates won't go much lower and at some point will be back up much higher. I got mine at 7.25 and am still smiling.
Thanks for the advice, I am just disappointed I missed where it hit around 6.5 (no points/no fee's) a few months ago. I am in Tucson AZ so I don't know if brokers there (Houston) can deal with me. I don't know how long I'll be in the house so I don't want to take points/fees.
Lock that in. You are also smart to go with no points or fees. It ussually takes many years to get back your points or fees. I would recomend you go with no more than 15 years. This way you start paying the principle earlier. On a 30 year mortgage, you are paying 3X what the house is worth. If you don't know how long you are gonna stay, go with the deal. Make sure you check at least 5 places as you may save a 1/4 point or so.
Man, I re-financed a few months ago. I was at 8.5, and got 7%. Two days after closing, it dropped to 6.5%
Check a few other lenders. I know of a few folks (first time buyers) who beat 7.0. w/o points. As long as you are not jumbo, you should be able to do better. Once you think youv'e gotten the best current rate, lock. The rates cannot go much lower and still provide a profit for many lenders - Plus I think Big Daddy Greenspan will tighten the reigns too soon (as usual).
Never...never go for a 15 year mortgage...you can get the amortization(sp?) schedule and simply pay the next month's principal payment along with the current month's interest+Principal, and retain your tax benefits and freedom. 30 year mortgage, and pay it off backwards.....each month...a payment, plus the next months principal. DaDakota
I did. Got 6.75 w/o points. Of course it was a friends I work with "partner", so I had a little bit of mercy. Oh yeah, Greenspan is my daddy! WOO-HOO! Thanks Alan! good luck Desert! BTW If you want to know who, send me an email, you can check them out, but I don't wanna break the rules here and advertise...
While getting a 30 and paying it off in 15 works, you can get a lower rate in a 15 year mortgage. The differense in payments on $130k and .5% is about $36 a month or $6500 over the 15 years. Why would you want to pay an extra $6500 is you plan to pay it off in 15 years anyway?
If I may, I'd like to mediate. Colby and DaDakota both have good points though they went a little bit to the extreme to prove them. As with most things, I think the truth is somewhat in the middle. Certainly, you want the best interest rate, but not at the expense of peace of mind. By opting for the thirty year mortgage, you have the freedom to make a smaller payment if you find yourself strapped for cash in a particular month--a very real possibility for most people. For MOST people, a thirty year mortgage is the safer bet. Interest, after all, is directly related to risk. However, if you are buying less house than you can afford, and you have no reason to believe you will ever be strapped by a 15 year note, then by all means, save yourself some interest expense and go with the shorter note. A house is almost always a good investment if properly maintained, and how many investments do you have that you get to enjoy on a day to day basis? In fact, their typical appreciation in value usually adds to your equity quicker than the principal portion of your note payments. The interest you pay on the note also carries some favorable tax consequences too. Sure, you pay for property taxes and insurance, but I feel the pleasure you get out of your home offsets these expenses. For these reasons, I'll always buy as much house as I feel comfortable with and stick witht the 30 year note. I ALWAYS pay a little more each month, but it's nice to know I don't have to.
People often get strapped for cash, that's why everyone should have an emergency fund of 3-6 months of living expenses. To not do so, especialy if you have a family, is irresponsible. Using the example I gave earlier, the difference a month is only $36. If you are in such dire straits that you can't squeze out an extra $9 a week, the $1,132 house payment is most likely the least of your worry. To me, an extra $36 a month buys me peace of mind. After paying it off in 15 years, I am free as a bird to save, save, save. If I continue to make payments into a savings account, I will amass over $200,000 in cash. After the 30 years, I have my house and some pocket change. To me, its worth the $9 a week.
Colby, Most people spend less then 7 years in a house, and the extra interest is completely tax deductable. I think giving yourself the freedom to pay it off early is better then locking yourself into it. Oh, and you can't get a decent house here in Austin for under 2k a month....man I miss Houston. DaDakota
For most people in this situation I agree with DD on this. You are better off putting that money you would put in paying your house early into other investmests (especially tax deferred ones--maxing out your 401Ks, IRAs, college savings plans for kids if you have them, etc.). For instance, you only have to beat making .07 per year (more if you itemize) on your money putting that extra house pre-payment in a Roth IRA. That isn't hard to do even with a relatively conservative investment strategy over a 15 year span you are paying your house off early. Then again, paying of your house early isn't a bad overall strategy--especially if you don't itemize (equivalent to having your money grow at a steady 7%), UNLESS by doing so you are not maximizing your 401K or 403Bs where you get matching. In the latter case it is a very bad long term strategy to pay off the house early and missing out on matching. Everybody thanks much on the advice. I am checking around some more.
Are you talking about the putting the difference of a 15 year rate payment and 30 year rate payment into savings? On a $130k loan, you are only talking about $36 a month. Thats a contribution of almost $6500 over the 15 years. If you pay off the house in 15 years, then contribute the former payment to savings for one more year, you will have more money than saving the $36 a month over the 15 years. Think about how much more you can save over the second 15 years without paying a $1,200 month house payment! Lots of times we don't think long term enough. Savings on rates, budgeting, etc can really add up. My favorite fools stat is this: If you keep a car payment of $340 from age 25 to 65 (assuming historical stock market returns, yet not even accounting for inflation of the $340 over those years), you just spent $4 MILLION dollars on your cars. Hope they were nice. BahDakota - I came up with the $130k by assuming 30% down on a $175k house. There are plenty nice ones in Houston for that price.
First, I am not talking into savings per se (money markets), if you are going to do that you are right it is better to pay the house off early. I am talking investments (mostly all stocks or stock funds at first), and even more so tax deferred ones (Or a Roth where you pay taxes first but never pay on earnings). Also, I am talking about not paying off either the loan early. See below: ********************************************************************* Let us say you are getting a 200K loan for a 240K house (say you have 40K down for illustration, though the amount down really doesn't make a difference for the example, what matters is they amount of the loan): #1 you could get a 30-year loan at 7.125%. Your monthly payment would be $1348 for a 200K home. You would pay the loan off in 360 payments. (total value of loan over 30 years = $485,280) #2 you can get a 15 year loan at 6.750. Your monthly payment would be $1770, it would take 180 payments. (total value over 15 years = $318,600). On the surface it looks like a no-brainer (pay far less interest in scenario #2—$166,680, over 30 years), but it really isn't. In scenario #1 you have an extra $422 a month or $5064 a year to invest in the first 15 years you don't have if you in scenario #2. All that money has been compounding on itself the first 15 years with another 15 to go. More often then not what you earn from that money you have invested will earn more than what you save in the payment after 15 years (see below). For instance project that $422 per month at a conservative 8.0 growth over 15 years. And the end of the 15th year, you have approximately 150K from that monthly contribution. On the 16th year--when you would no longer have a house payment in #2, that money will then make about 17K for you. That is more than you make from now not having to make a house payment in scenario #2 (16k = $1348 x 12) Of course there are some assumptions here and the above case it is pretty close. However, if you 1) itemize (get tax relief for mortgage interest beyond what you can get via standard deduction) or 2) get matching (firm pays .50 or 1.0 per 1.0 you put in) for a 403B/401K that you can't maximize by having a larger monthly mortgage payment--then it REALLY favors putting that extra money to work in funds/stocks over paying the house off early. Likewise, as someone else said, if you expect the house to substantially appreciate--in most places in the Southwest I would feel great about it over a 30 year outlook--this can also favor the 30 year plan more. The following scenarios however could favor the 15 year plan. a), and this is the biggest one, if you have any concerns about being disciplined enough to always put the extra money ($422) from the 30 year plan into funds/stocks/savings. b) you are not likely to get beyond the standard deduction even with mortgage interest. c) you already max out 401k/403B and any other pre-tax or tax deferred type options for you.
A well diversified portfolio, agreed. Part of what we were talking about was getting a 30 yr loan, but paying in 15. My point was why not get a 15 then? Save yourself the extra points. Somehow I doubt that. Lets see. 17k? Are you talking about #1 or 2? If #1, why did it make 16% that year? 1.16 X $146k = $170k (about). Continued at 8%, would be about 157k. I guess at this point you are considering the growth to be tax free? I think you got confused here. Or I did. Not having a house payment would be a savings of $21,240 per year. However, what kind of taxes would be paid while you were working up to the $157K? Was that $422 you ROTH contribution? If you didn't have any other contributions, it almost sounds like you have too much house. If you were maxing 401k and Roths anyway, real growth after taxes would be around 5.76%. It gets real tricky from here on out. Assume both are in taxable accounts because we are good family men that already max out our tax free advantages. At the end of the 30 years, #1 would have $405K vs $505K for #2. Considering both lived without the same $1770, I would take the extra #100k plus 15 years of not even thinking about a house payment. Of course there are so many variables that can effect the situation either way.
Yeah were talking about different things there. If you are sure you want to play off the house in 15 years you want to get the extra .5 off the interest rate. I am comparing 30 year versus 15 year with no pre-payment. You are correct my logic here is flawed in the first step. You would start off only adding more like $12000 in scerario #1 after 15 years. However you are adding it to a pool of 146K instead of begging your pool 0 and adding the 16K you save from not having a payment (I'll get to this in a second --why 16K and not 21K was used in my comparison). Even though you are initially putting more in with option #2 (16K to 12K), the total pool never catches up because of compounding. Let us run it to the end of when the 30 year loan would run and compare where the two strategies stand: at 15 years: option 1: you have accumulated 150K (closer to 150 than 144 because you pay monthly rather than yearly). You then never add another dime for 15 years but have the money compound. The total at the end of 30 years is around 475K. option 2: you have accumulated 0, but begin adding 16K per year compouned for the next 15 years (16K is the figure you use here not 21K because it should reflect what you still need to pay on the 30Y that you don't pay on the 15Y option). This total = 440K. You could also use 21K as you did but then you also have to include 5K additions after the 15th year for option1 and the net figures would even that part out. You are right there are many variables and if the money is not put into a Roth or tax deferred it really gets sticky. The other key issue is whether you itemize you interest in effect lower your interest rate on the loan.
Desert Scar - So you are comparing two (scenario #1 and #2) ways to pay off a 30 year loan? You are making no comparisons between 30 and 15 years loans? Is this correct? I recomend never getting a 30 year loan. If you can't afford the payments, you have too much house.
