Refinancing- would you get things this tight?

[dawnwes]

I am looking at the current rates and for a 10 year mortgage I can get 3.25%.

We currently have a 15 year mortgage at 4.37%.

Here is why I am considering it: It would save about $45K over all.
Here is why I am concerned: The payments would be 30% of our GROSS income, about 42% of our take home pay.

Thoughts,

Dawn

[Like2Plan]

Refinancing- would you get things this tight?
I am looking at the current rates and for a 10 year mortgage I can get 3.25%. We currently have a 15 year mortgage at 4.37%.
Here is why I am considering it: It would save about $45K over all.
Here is why I am concerned: The payments would be 30% of our GROSS income, about 42% of our take home pay.
Thoughts,
Dawn

No, I wouldn't for myself. There would be too much risk for me to feel comfortable with it. Have you modeled different scenarios with mortgage amortization calculators --like how much you would save if you kept the current mortgage and made additonal payments up to the level you would be paying with the new mortgage?

[BMEPhDinCO]

I agree with Like2Plan...make extra payments if you can, but don't do the refinance. The only exception would be if you are expecting a large increase in pay soon (like, someone is just finishing school and will get a better job in the next 6 months).

Otherwise, while I understand wanting to be mortgage free, extra payments would also make it go faster and you can stop them if you get into trouble. Additionally, you should be saving for retirement at 20% or more and putting money into future accounts for the house, cars, etc. If you can do All that AND refinance, then that's your choice but I would just pay whatever extra I could after the other things were taken care of.

[dawnwes]

Thanks guys. We did talk this evening and I think we both think it isn't going to work to refi.

The difference ultimately is this: The payments would increase by $350. We would save $45K. However, if we pay an additional $350 on our current loan we would only save $18K over our current payments. So, it would be significant.

But I have to look at the overall picture. We refinanced from a 30 year to a 15 and saved almost $175K over the life of the loan, so we already were getting tighter.

I just go so excited when I saw 3.37% interest on a 10 year loan.

But I think you are right, we can't do it.

And yes, we do have savings and a healthy retirement. But our disposable income is already pretty tight for my comfort.

Dawn

[cschin4]

Always keep the longer term for flexibility. You can always prepay and in fact, you should. Keep the longer mortgage. Why? If things get tight, you have the lower payment. Job losses, illnesses, etc can occur so why push it to the edge. If you are doing well you can simply prepay on the principle. We paid off our 30 yr mortgage in less than 10. Don't get hung up on interest rates. People get focused on that and end up on a constant refi cycle then start adding in more to the principle. It is very tempting to take out a larger loan when refinancing to remodel or do other things. That will only get you further away from your goal. And, refi costs money. There is a prestense by lenders that it doesn't but that is simply BS where costs are rolled into the loan or whatever. You have a good rate, i would let it be and focus on prepaying.

[disneysteve]

I would definitely not put myself in a loan that took 42% of take home. That's way over the 28% max recommended. Keep the loan you've got. Make extra payments if you choose to (and all of your other financial needs are being taken care of) and maintain the flexibility to stop or adjust those extra payments if you choose to. Don't tie your hands. You never know what could happen next month or next year. Will it cost you more in interest? Yes. But it could also save you if you were to lose your job, get sick or have some other major expense pop up.

[mmgarren@yahoo.com]

I agree with the people that recommend not doing it. A savings of 45k is good but a person needs wiggle room and 42% of your take home income is just too much. When you have extra funds available it would be a good idea if you prepay your mortgage. You are still saving on the interest cost of the loan and have the safety of having the money when needed.