when to refi?

[LivingAlmostLarge]

Read the 30 year fixed might be heading under 3%. I'm going to get the name of a broker and think about it. Here's the thing.

Right now I have a 7/1 arm at 3% and we're in 3 years. It expires 7/2024. Our rate is capped at 8% or 5% above 3% with 2%/year raises. We hadn't considered ever refinancing. We figured in 2024 we'd probably consider it but wanted to see how everything played out. That being said I'm wondering how did you decide to refi?

So the one small sticking point for us is that our mortgage bought in 7/2017 is completely deductible right now. If we refi it might not be.

How do I look at this logically? I probably need to crunch the numbers right?

[~bs]

rates are going to oscillate all over the place as the stock market shifts around. you just need to find a rate you like and pull the trigger, assuming you're staying in the place long enough to make up the costs. Not sure about ARMs though.

Tax deductions is nice, but paying less interest is nicer. Also itemizing isn't a good a benefit as it used to be since all tax payers gets a 10k or 11k deduction per person, and your interest needs to go over that to even see any sort of benefit.

[MonkeyMama]

We personally run the numbers and refi when it saves us substantial money in the long run. This has been generally at every 1% drop. Never in a million years thought it would get that low, or else could have done fewer refis along the way. We decided against the last refi (15-year at 3%) because we only plan to live in our home a few more years and the refi wouldn't save us any money. I haven't ran staying in our house for 4 years at 2.5% or 2.75%. I will do so this week. It might just not be worth the hassle. I usually just run an amortization table and look at the balance at the end after factoring refi fees, etc. If the mortgage balance will be lower with the refi then I will do. This is harder to do with a lower mortgage balance and a shorter time frame.

In your situation, I would personally lock in the 3% long-term so I wouldn't have to worry about rising interest rates. The exception would be if you only plan to stay in your home short-term.

Refinancing should not change the deductibility of your mortgage. You will have the same deduction either way, if the interest rate stays at 3%.

Regardless, keeping a tax deduction is a silly reason to keep a higher interest rate. If your tax rate is 25% then you are paying $1 to save 25-cents. Better just to save the $1. Even if you are in a very high tax situation, the math will always be that it's better to save the $1.

[Fishindude77]

If you could get something "fixed rate" at or near todays numbers that would be a win.
It's only going to go UP from here.

[LivingAlmostLarge]

I misspoke. I'm definitely itemizing. I guess I should have said if I refi I have to be under $750k or I lose some of the benefits of being above it but under a $1m. I have a mortgage larger than that right now. All of it is deductible we considered it very carefully when we bought. The timing was such that if we had to refi after 7 years we would be at around $750k. I get a deduction more like 35-37%. If I refi now I have to bring some cash to the table to bring it to $750k.

MonkeyMama I was thinking about that. But mortgage locked in are hedges against inflation. I've been reluctant to let go and pay down the house but we are planning on staying 10-14 years. I think we are doing the addition to the house. I prefer at 3% to invest the money and pay cash for stuff than pay down the mortgage. I think I can beat 3%.

[MonkeyMama]

I misspoke. I'm definitely itemizing. I guess I should have said if I refi I have to be under $750k or I lose some of the benefits of being above it but under a $1m. I have a mortgage larger than that right now. All of it is deductible we considered it very carefully when we bought. The timing was such that if we had to refi after 7 years we would be at around $750k. I get a deduction more like 35-37%. If I refi now I have to bring some cash to the table to bring it to $750k.

This is not true. Refinancing should not change the tax deductibility of your mortgage. Unless you cash out and borrow more. (Home purchases before tax changes are grandfathered in. A refi is just a refi).
I would double check the tax rules.

[TexasHusker]

We personally run the numbers and refi when it saves us substantial money in the long run. This has been generally at every 1% drop. Never in a million years thought it would get that low, or else could have done fewer refis along the way. We decided against the last refi (15-year at 3%) because we only plan to live in our home a few more years and the refi wouldn't save us any money. I haven't ran staying in our house for 4 years at 2.5% or 2.75%. I will do so this week. It might just not be worth the hassle. I usually just run an amortization table and look at the balance at the end after factoring refi fees, etc. If the mortgage balance will be lower with the refi then I will do. This is harder to do with a lower mortgage balance and a shorter time frame.

In your situation, I would personally lock in the 3% long-term so I wouldn't have to worry about rising interest rates. The exception would be if you only plan to stay in your home short-term.

Refinancing should not change the deductibility of your mortgage. You will have the same deduction either way, if the interest rate stays at 3%.

Regardless, keeping a tax deduction is a silly reason to keep a higher interest rate. If your tax rate is 25% then you are paying $1 to save 25-cents. Better just to save the $1. Even if you are in a very high tax situation, the math will always be that it's better to save the $1.

I knew a guy where I once worked who was due for a $7K raise. He told them he only wanted $3K because any more than that would throw him in a higher tax bracket. The guy had an MBA from Baylor University.

[disneysteve]

I knew a guy where I once worked who was due for a $7K raise. He told them he only wanted $3K because any more than that would throw him in a higher tax bracket. The guy had an MBA from Baylor University.

It is disturbing how many people can't understand the pretty basic concept of our our tiered income tax system. Back when I was a medical resident (1990-93) we had the opportunity to take moonlighting jobs working in doctors' offices for pretty great pay. It was typically about $50/hour - in 1991! I took all the jobs I could get while several of my peers refused to moonlight because it would put them in a higher tax bracket. Big friggin deal. It's always better to earn the money and pay the taxes.

[LivingAlmostLarge]

no i got it. Let me repharse. When we got our mortgage it was deductible up to $1m. Now the limit is $750k for a new mortgage post 2017. If we refi our mortgage now to a fix rate and it's above $750k it will be limited and capped at $750k. So if our mortgage is say $860k then $110k is no longer deductible on our tax return when it is currently deductible under our current mortgage.

It has to be weighed if it is worth refinancing and losing the deductibility on $100k. It may mean choosing to cap out at $750k on refinancing and bringing cash to the table. Or refinancing the larger amount with the realization that like property taxes the mortgage interest is no longer 100% deductible it is capped.

explaining over this writing is harder than saying it in person. I get it completely. It weighed in our decision prior. As I said at 7 years our mortgage balance would be around $760k which we had considered when we bought in 2017 and at that time we decide we'd do the arm because we'd likely just refinance up to the capped amount of $750k.

[myrdale]

It is disturbing how many people can't understand the pretty basic concept of our our tiered income tax system.

This is something that I didn't have a full grasp on until recent years. I have *NOT* read Title 26, but it is my understanding that though it is some 6,500 pages long, only a very small portion has to do with what you have to pay. Everything else is about exemptions.

[disneysteve]

This is something that I didn't have a full grasp on until recent years. I've read Title 26, but it is my understanding that though it is some 6,500 pages long, only a very small portion has to do with what you have to pay. Everything else is about exemptions.

I don't mean the whole tax code, but simply the tax brackets. If you are in the 24% bracket, it doesn't mean you pay 24% on every dollar of your income. The system is tiered. If your income rises into the 32% bracket, you don't suddenly pay 32% on your entire income but rather just on the amount of income over the limit of the 24% bracket.

[Nutria]

Given that the Feds dropped the FFR to 0% the other day, now looks like the best time to refi...

[TexasHusker]

Given that the Feds dropped the FFR to 0% the other day, now looks like the best time to refi...

One would think so, but rates have actually jumped a good bit this week. Demand is very high and lenders can get higher rates. It's like the old retail trick where "everything is on sale", when they raised prices by 30 percent the night before, only to mark them down 25% for the sale. Shoppers are carrying out bags of merchandise acting like they stole something.

Give it a few months to cool off and you will see mortgage rates really fall. The overnight rate by the Fed isn't going above zero any time soon.