How can I take advantage of low mortgage rates?

[DaveInPgh]

Is there a way for my wife and me to benefit from the all time low mortgage rates without extending the length of our payments? We obtained a 15 year, 4.75% fixed rate mortgage in August 2003 in the amount of $132,000. Our monthly payments have always included some additional principal, and we have already knocked a year off the loan. We currently owe about $63,500. If we were to skip additional principal payments going forward, the loan will be paid off in 6 years. I am confident we can pay off the mortgage within 5 years.

Our goal is to pay off our debt while paying the least amount as possible in interest. The shortest fixed rate term I have seen advertised is a 10yr, and we are not interested in an ARM. If we were to proceed with no additional principal, we will pay an additional $9,200 in interest. Adding approximately $200 to our monthly payment will reduce the interest paid to approximately $7,500.

I realize that historically 4.75% is a good rate, but I am curious if there is a way to take advantage of the record low rates. Any suggestions you may have would be greatly appreciated.

[Petunia 100]

You can refinance and continue making the same payments you are now. Just crunch the numbers before you sign the new note. If your interest savings do not cover the refinancing costs plus put some money back in your pocket, then there is no reason to refinance.

[BMEPhDinCO]

If you are a PenFed member (or want to become one for this), they offer a different type of ARM - it's a 5 year one, so it locks in the same rate (currently 3.65% Rate and 3.217% APR) for 5 years. So if you can pay off your loan in 5 years, you would benefit the most from that...plus, they pay closing costs.

I tried this myself, but they are very strict and want a great credit score, at least 20% equity, a long job history, and a long future job prospect (apparently "graduate student until forever" doesn't count for this).

So it might be worth that...otherwise you'll have to find the breakeven point and see if it's worth it.

Personally, I would just pay more on the loan at this point...if you don't want to deal with paperwork and closing costs.

[DaveInPgh]

I used $2500 for my refinance costs and the net would be a $310 loss. I based it on a 10yr fixed rate mortgage at 3.25%.

[DaveInPgh]

If you are a PenFed member (or want to become one for this), they offer a different type of ARM - it's a 5 year one, so it locks in the same rate (currently 3.65% Rate and 3.217% APR) for 5 years. So if you can pay off your loan in 5 years, you would benefit the most from that...plus, they pay closing costs.

I tried this myself, but they are very strict and want a great credit score, at least 20% equity, a long job history, and a long future job prospect (apparently "graduate student until forever" doesn't count for this).

So it might be worth that...otherwise you'll have to find the breakeven point and see if it's worth it.

Personally, I would just pay more on the loan at this point...if you don't want to deal with paperwork and closing costs.

This definitely sounds interesting. No closing costs at all?

ETA: I found their website and the offer. I wasn't sure what PenFed was until I looked it up.

[DaveInPgh]

I crunched some numbers with the PenFed 5/5 ARM before I left work. Adding the $750 monthly savings to the $200 additional principal that we currently do would save us about $1977. It would also move the payoff up a couple months, providing an additional benefit of $2500.

I really like the sound of this idea, but I think it might be a tough sell with my wife. The acronym ARM and 30YR term might cause her some doubts.

[dawnwes]

Just to let you know, I had a bad experience with PenFed. They charged me for something I did not agree to and then the loan officer I worked with was extremely rude. I had to go above her to finally get my $$ back.

We opted to NOT use them after that experience and we were fully approved.

You may have a better experience than we did, but I wouldn't recommend them.

[krantcents]

I have a similar situation. I looked into a 5 year ARM because it offered the lowest possible rate (3.1%), but the closing costs made it less attractive. I decided instead to pay additional principal in my existing loan (15 yr. mort. at 5%).

[DaveInPgh]

Thanks for the feedback about PenFed. I haven't decided if I am going to start an application or not. I really like the numbers though.

[Eric80]

How can I take advantage of low mortgage rates?

There is always refinancing to an interest only payment and this would reduce your monthly repayments massively and then with the remainder of your money you could put into a high interest account, I am not a financial exporter but this is the only way I can think of taking advantage of the low interest rate. Personally I think you have a good rate at 4.75% I am a prudent consumer and eventually interest rates will increase especially has there has been a global recession of 3 years. Increase Interest rates is a fiscal policy to push the economy. Interest point you did bring up though.

[Slug]

I've been a PenFed member for years and have never had a problem with their customer service. In fact, I always feel like it's top notch when I call them. I do not have any loans with them, but I would encourage you to at least explore the option. They were very helpful in convincing me not to use them for my mortgage once they understood the rate and terms available to me elsewhere.

[DaveInPgh]

There is always refinancing to an interest only payment and this would reduce your monthly repayments massively and then with the remainder of your money you could put into a high interest account, I am not a financial exporter but this is the only way I can think of taking advantage of the low interest rate. Personally I think you have a good rate at 4.75% I am a prudent consumer and eventually interest rates will increase especially has there has been a global recession of 3 years. Increase Interest rates is a fiscal policy to push the economy. Interest point you did bring up though.

Thanks for the suggestion. Years ago when I could get 5% from an online savings account, I would use the 0% credit card convenience checks to make some extra money. It was a no brainer for me because I knew I was disciplined enough to pay it off before the 0% interest was over. My wife was never a fan of those moves but didn't protest because it wasn't large sums of money. Doing a refi to invest the savings would not go over well at all.

I think refinancing and applying the savings as additional principal is my best approach.

[DaveInPgh]

I've been a PenFed member for years and have never had a problem with their customer service. In fact, I always feel like it's top notch when I call them. I do not have any loans with them, but I would encourage you to at least explore the option. They were very helpful in convincing me not to use them for my mortgage once they understood the rate and terms available to me elsewhere.

Thanks for the feedback.

[FrugalGirl321]

Have you called your current mortgage company first to see if they'll do a no-cost refinance? Or, are there any specials running in your area through a credit union? You won't receive the lowest possible rate, but you'll definitely get lower than 4.75%. Even if you start your 15 year loan over, you seem disciplined enough to pay the extra money each month which will pay your loan off faster.

We re-fied last year from a 15 year (4.75%) to a 10 year (4.375%), at no cost. We just refied again last week from our 10 year (4.375%) to another 10 year (3.675%), at absolutely no cost. The catch was that we didn't qualify for the 3.5% rate because we didn't pay closing costs. I know we're starting the loan over, but we've been paying extra since our original mortgage 9 years ago. It works well for us and you seem to be the person to also keep up with it.

[DaveInPgh]

I honestly didn't think about contacting my current mortgage company. Thanks for the suggestion. My mortgage with with Citi. I will probably wait a couple weeks to make a decision while we get our daughter situated in the back to school routine. Definitely appreciate all the suggestions.