by Mr. T in DC
Question by PB: I have been paying down my mortgage aggressively. I want the freedom to own my home. Thoughts on this -?
I am 42 and my husband is 46. We do not “sacrifice” but are careful. Our current outstanding mortgage is $ 160,000. We started with $ 346,000 almost 4 years ago, but have been paying it down. Our interest is 4% but it is an adjustable that may jump to 6% in April of 2009. Is there a way to refinance and lower my payments so that we may pay off our home sooner, and so that we may be able to afford college without struggling?
Answer by jennifer h
Talk to your Bank manager
Add your own answer in the comments!
If the true value of the home, based on a hard appraisal and not a quesstimate, then you are at about 46% loan to value! Great job! Have you ever calclauted your APR to see how much money you did save by applying additional payments?
Did you start out with a 30 year mortgage? Would you be looking at just a rate and term refinance with no cash out? Look at a 15 year rate and a 10 year rate. Go to a fixed rate product with no pre-pay. Definetly talk with your banker and explain what you are trying to accomplish…but I will tell you this….with you having so much equity already and a low rate, they’ll probably steer you to a HELOC (Home Equity Line of Credit) and not touch the first. In my opinion, don’t do it! Get a Fixed rate on the first and don’t tap into the equity unless you need it to pay for college. Do you? A HELOC loan operates just like a revolving charge card and the rate changes everytime the index margin changes…so it has all the potential to increase on the rate and it’s also a Second Mortgage on your home..which is a lien in second position.
So,if I were the person doing your home loan knowing you didn’t want to tap into the equity you already have for college expenses, I’d put you in a Fixed Rate product, run you an APR and show you how to pay the home off in less time as well.The big question would be…what is your principal and interest monthly as of now…..not the extra you’re paying, but what is on the Mortage Note itself?
You are not going to get any better that what you have. Keep doing what you are doing and when your rate adjusts in 2009, look at the rates offered at that time. If you can refi and get at least a point better at that time, do the math of the closing costs vs the time left on your mortgage and see if it makes sense.
If you’re going to keep paying down the loan at the same pace, I wouldn’t refi.
However, if you’re going to slow down the pace to the monthly minimum, and you might have trouble making the mortgage payments at current and future amounts, then I might.
Also, do you have any other high interest consumer debt that you can pay off, ie, credit cards, personal loans, etc. If you are looking to pay something down/off, do that first. It’s better to keep low interest, tax deductible debt (good debt), than high interest revolving debt (bad debt).
In case you haven’t run the numbers here are some scenarios to ponder re: the refi:
CURRENT SCENARIO(assuming a 30 yr term & only 1 loan):
$ 346,000 @ 4.000% for 30 yrs = $ 1,651.86/mo
NEW LOAN SCENARIOS (30 yr, 20 yr, 15 yr):
$ 165,000 @ 6.000% for 30 yrs = $ 989.26/mo
$ 165,000 @ 5.875% for 20 yrs = $ 1,170.72/mo
$ 165,000 @ 5.625% for 15 yrs = $ 1,449.15/mo
Good luck in your decision.