I just saved $40,000

[riverwed070707]

We've decided to refi to a 15 year mortgage. Rate is 3.25% compared to our current 30 year with 5% interest. Couple that with the fact that we will no longer be paying PMI and its only costing us an addition $34/month +$2k in closing costs.

Been wanting to do this for a while and finally decided to pull the trigger. Fingers crossed the home appraises where we expect it to so we can officially have 20% equity and feel like we're making some progress toward paying down our loan.

In looking at the numbers, I officially feel it should be criminal to give someone a 30 year mortgage. Seriously, I've been in my house two years and paid down less than $3k in principal. I will pay down an equivalent amount of principal in the first year of the refi.

How much we learn when we take charge of our own finances and look at teh bigger picture!

[NetSkyBlue]

Congratulations!

I think 30 yr is the standard because most people don't have the discipline to save for a large enough DP to afford payments on a 15 yr. My goal is to save up a 30-40% downpayment (depending on the price of the house) and do a 15 yr mortgage. Yeah, it's going to take me a few years longer to save, but I aim to have very affordable mortgage payments, and be done in half (or less) the time it takes "most people" to pay off their house.

[MonkeyMama]

Congrats!!

To be fair - the higher principal payment part has a *lot* to do with these low interest rates. It has a lot to do with the shorter amortization too. But I've had a 15-year loan before at a much higher interest rate, and though we were paying a lot more prinipal, the mortgage payment was also double what our current mortgage is.

We just refied to a 30-year at 4% and it is blowing my mind. I can imagine 3.25% would significantly decrease the interest and increase the principal part, of any length loan. {We initially wanted to hold out for a more reasonable 15-year payment and a lower interest rate closer to 3%, but I ran the numbers on the 30-year and it was just too good to pass up - we will be paying significantly more principal in the interim - might eventually get into a 3.25%-ish mortgage. If not, interest rate is less than 1/2 where we started in the 1990s - no complaints! These mortgages are infinitely easier to pay off earlier, without the higher interest rates}.

[LivingAlmostLarge]

No, 30 years are good for certain locations. We certainly couldn't afford a 15 year mortgage where we live and most couldn't either. Our DP like probably MM was 6 figures at just 20%. It's not like we weren't being good savers but to actually save enough to make a 15 year possible it'd take a long time even with a good salary.

Did you run the 30 year fixed rate and see if you just paid extra if it was worth doing? In times of need you can go down and always pay more if you choose.

[riverwed070707]

I agree. The difference in payment was a shock to me since its really not that big of a difference. We looked at 10 year loans too and since it's only .2% lower, the payment was going to be another $156 more than the 15 year and $238 more than our current.

We may not have made the best financial decision to buy (not enough down, financed to long, didn't know if we were going to stay long) but refinancing and making the decision to stay in our tiny home even though we're finally about to be rid of our second house seems like one of the best decisions we've made.

[BuckyBadger]

I love a good refinance story!

In 2010 we went from a 30 year at... Geeze, I don't even remember... 6.something% to a 15 at 4.5% and then just this month we refied again to another 15 at 3.15% and rolled in our HELOC. Even upping the loan amount to include the HELOC decreased our payment by $136 a month while paying $23 more in principle.

With tax deductions, it comes out to a rate of about 2%. It's the cheapest money I've ever seen!

[riverwed070707]

No, 30 years are good for certain locations. We certainly couldn't afford a 15 year mortgage where we live and most couldn't either. Our DP like probably MM was 6 figures at just 20%. It's not like we weren't being good savers but to actually save enough to make a 15 year possible it'd take a long time even with a good salary.

Did you run the 30 year fixed rate and see if you just paid extra if it was worth doing? In times of need you can go down and always pay more if you choose.

But to do this, I would have to double my principal payment. It would cost more in the long run both from the higher rate (1.75% is no chump change) and a higher month to month cost.

I agree it doesn't make sense for all situations, the thing is we were dumb when we purchased, didn't put hardly anything down despite the fact that my entire house cost less than your downpayment and we just did it all wrong. I wasn't intending to offend, just meaning to say we're fixing our mistakes.

[MonkeyMama]

Did you run the 30 year fixed rate and see if you just paid extra if it was worth doing? In times of need you can go down and always pay more if you choose.

I can assure you that she is better paying the 3.25%. She's only adding $34/month to her mortgage - I would absolutely do so to save 0.75% interest. That is a substantial interest savings.

For you and I, we aren't going to get a 15-year with only +$34 to the mortgage payment. Well, though I am trying to by paying off a ton of principal. I just am not interested in committing to a significantly higher mortgage payment. Clearly you are in the same boat - but we are not in the average boat. Even where I live, most people are WAY CRAZY over-leveraged, even with higher housing costs. (I mean - they borrowed tons of equity for toys - that kind of thing). So seeing so many people take advantage of low interest rates and shorter mortgage terms - I think it is great!

[disneysteve]

No, 30 years are good for certain locations. We certainly couldn't afford a 15 year mortgage where we live and most couldn't either.

One could argue that if 30-year loans didn't exist and 15 was the standard, that would, by necessity, have an impact on housing prices. Much of the housing bubble was brought on by the way-too-easy access to funds. Tighten up the lending standards and housing prices wouldn't have shot up the way they did. Remember, a house is ultimately only worth what a buyer is willing to pay.

The other problem in many areas is what people demand for themselves when they buy. We bought an older, modest home that needed some work though it was move in ready at the time. We spent less than 2 times our annual income. How many home buyers can say the same?

[disneysteve]

15 year mortgage. Rate is 3.25%

15 at 3.15%

I'm jealous. We went to a 15 in November 2010 but at 3.99%. I didn't think rates would go any lower. Guess I was wrong.

[riverwed070707]

One could argue that if 30-year loans didn't exist and 15 was the standard, that would, by necessity, have an impact on housing prices. Much of the housing bubble was brought on by the way-too-easy access to funds. Tighten up the lending standards and housing prices wouldn't have shot up the way they did. Remember, a house is ultimately only worth what a buyer is willing to pay.

The other problem in many areas is what people demand for themselves when they buy. We bought an older, modest home that needed some work though it was move in ready at the time. We spent less than 2 times our annual income. How many home buyers can say the same?

Oh me! We spent about 1x our annual income, give or take a couple thousand! But it wasn't our first try... It was a lesson learned from buying too much house the first time around. Guess I kinda went from one extreme to another

[MonkeyMama]

I think this is also a really rare time in that 15-year loans are *so much cheaper* than 30-year loans.

Every time we have refinanced down a percentage point, we have considered the 15-year option. I mentioned we had a 15-year mortgage at some point. But I've never seen such a large gap between 15 and 30-year loans. Not any time that I was shopping loans, anyway.

[phantom]

It still amazes me how much rates have fallen. When my husband and I started looking at houses 3 1/2 years ago, we figured out how much we wanted to pay for a house assuming we'd get a rate around 6% on the mortgage. When we actually bought our house 3 years ago, we got a 30 year mortgage at 4.75% and thought we'd gotten a bargain. Then a few months ago, we refinanced to 15 year mortgage at 3.25%, and I still can't quite believe it.

When we first got our 30 year mortgage, I insisted we get a 30 year mortgage even though it looked like we could handle the 15 year payments because I wanted some wiggle room in case we needed to tighten our budget. Refinancing did mean raising our minimum payments by $150, but we figured that we could handle that.

Just yesterday my husband pointed out that before we refinanced more than half of our minimum payment amount went to interest, and now just a little more than a third goes to interest. Granted, part of what makes the percents look cool our minimum payment going up, but we really are making more progress now that we have a lower rate, and that does feel good.

[greenskeeper]

One could argue that if 30-year loans didn't exist and 15 was the standard, that would, by necessity, have an impact on housing prices. Much of the housing bubble was brought on by the way-too-easy access to funds. Tighten up the lending standards and housing prices wouldn't have shot up the way they did. Remember, a house is ultimately only worth what a buyer is willing to pay.

The other problem in many areas is what people demand for themselves when they buy. We bought an older, modest home that needed some work though it was move in ready at the time. We spent less than 2 times our annual income. How many home buyers can say the same?

This could be applied to everything. Car loans, Credit cards, easy money makes the price of everything go up.

[dawnwes]

Wonderful!

We refinanced to a 3.37% with no closing costs in Oct of 2011. We are happy.