Compare 15 Year and 30 Year Mortgage Refinances
by Brenda in Texas and by Shawn in Mentor, Ohio
Ask Kate to compare 15 year and 30 year mortgage refinances: Brenda and her husband are trying to decide if a 15 year streamline refinance is a good idea, taking into account their ages. They describe themselves as credit-rich yet cash-poor and ask what to consider before making a decision. Shawn is contemplating the affordability of a 15 vs a 30 year mortgage. Then again, he wonders if it's best to pay off personal debt.
To Streamline Refi My Loan or Not By Brenda in Texas
We purchased our first home in October 2007. We are 52 and 56 years of age.
The original loan was $112,000 at 6.375% with a 30 year fixed. The mortgage balance is paid down to $99,600.
Our mortgage company says we can do a streamline refinance for the amount of the initial loan of $103,264. The terms are 15 year fixed at 3.625%.
Amount financed $101,710 at 3.801% APR. The origination charge is $390 and the other settlement charges are $3444.
We are unsure of what the house will appraise for. It could be as low as $104,000 or $125,000 high.
We want to pay off the house as soon as possible considering our age, retirement, and the need to work. We are credit-rich but cash-poor. What else should we consider?
Ask Kate answers: To Streamline Refi My Loan or Not
Hi Brenda, Ask the lender to compare the closing costs and mortgage rate of a streamline refinance to a regular refinancing package.
Sometimes the only perk to a streamline refi is a little less traditional documentation. Even so, there can be a whole lot more of we-only-need-one-more-piece-of-paper throughout the process! So it pays to ask upfront.
Other times going streamline means there may be no appraisal fee. However, this doesn't always eliminate the requirement of an appraisal.
So ask for the advantages to going streamline and compare the cost in writing. Then make a budget based on retirement income. Can you swing the 15 year mortgage payment after you are no longer working?
I saw many homeowners fall in love with the idea of paying off their home in 15 years. But when push came to shove, making the accelerated house payment each month was a real stretch.
But if you can swing a 15 year term, it will be great to have the house paid off sooner than later.
Just make sure the payment fits into your budget
and you're not relying on the lender to assure you it's affordable.
Refinancing with HARP By Shawn in Mentor, Ohio
I owe $116,000 at 6.75% on a 30 year mortgage with only 20 years remaining. My monthly payments are $1071 which includes homeowner insurance and taxes. Is it truly beneficial to refinance with a 15 year 4.875% with a monthly payment of $1155?
I do realize that the equity will be built up much faster, but am wondering if going with another 30 year 5% with a much lower monthly will be better?
Given today's market, I just don't know what to do, if anything. I just think a lower interest rate is better but not sure which way to go.
Oh and the market value of my home is probably around $101,000.
I do have a second mortgage with another bank which is not renewable or I cannot add on to which is currently at $9500.
Is HARP the way to go or do I pay off some of my other loans, car, and two credit cards totaling $4500. I have multiple IRAs and Annuities.
Ask Kate answers: Refinancing with HARP
Hi Shawn, Take your original mortgage balance and plug it into my payment calculator
, along with a 30 year term and 6.75% interest rate.
Then view the amortization report to see how much interest you'll still be paying over the remaining 20 years if you don't refinance.
By the way, you'll find instructions on the calculator page to walk you through the process.
Then do the same for the 15 year loan. For example, $120,000 (allowing for estimated closing costs to be rolled into the current balance) at 4.875% for 15 years. That should equal about $50,000 total in interest to be paid.
Now rinse and repeat for the new 30 year mortgage.
This will help you decide which term will suit you best. You'll also be able to compare refinancing to keeping your current mortgage.
Speaking of, you mentioned paying off your personal loans instead of refinancing. I've actually written a book on the relationship between debt free living and early mortgage payoff!
You could use the techniques in my book with or without refinancing. Go to Mortgage Freedom Project
where I describe the book.
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