Got it! (I needed more coffee.)
The endgame of getting the “best” mortgage is of course paying the least amount of interest over the life of the loan. You do this one of two ways or better yet, both ways. Shorten the term and/or get a lower interest rate.
So yes, if you can afford it a 15 year mortgage will save you more in interest than your remaining 22 year mortgage, even with the same interest rate. You actually don’t even have to refi to achieve this. You just have to plug in the numbers into a mortgage loan calculator (bankrate.com has a great free one) to see what the payment would be on a 15 year loan and then start paying that amount each month on your existing loan (directing the lien holder to apply the additional amount to principal).
Another excellent way to pay less interest on your loan which also results in paying the loan off faster is to throw large lump sums of money at the loan when you happen to have them. An extra $10k thrown at the principal on the 4th year of a 30 year loan will pay itself back and then some with the amount of interest saved.
Your plan sounds like a great plan.
Great info. Thanks!
If my math is correct, then the following holds:
- At 4.625%, the increase in monthly payments from amortizing a loan over (the remaining) 22 years to amortizing it over 15 year is ~27.7%
- If as a result of refinancing you can get that rate down to 2.625%, then the increase in payments goes down to ~11.3%.
After that, you can figure out what makes sense for you.
The above does not reflect any possibly closing costs and fees.
As for 20 year rates, they generally don’t tend to be much lower than 30 year rates, if at all. The same is true of 10 year vs 15 year rates. And it’s even more true of oddball durations like 22 years (which are not widely available altogether.) The 30 and 15 durations are by far the most popular, and the market for them and the bonds backing them is more robust than the other durations.
Thank you for doing that math for me. That sounds like a pretty good option for me.
Unfortunately, my broker mentioned the good rates and had them call me.
Maybe call your brokerage and initiate the same route? Or your broker may have a phone# to Rocket just for their brokerage costumers. Failing that, PM me and I’ll give you general number I have, but it’ll be for Schwab customers, but I’m sure they can direct you.
On the quotes I got the 15 year wasn’t a whole lot less that the 30 year, but both way less than I’m paying now. I always pay more than the minimum monthly payment, if I pay the new 30 year with the monthly payment I have been making I pay off in 16 years - but, like Raza mentions, I have the option of paying less if cash flow gets tight.
A general comment here: when you get a mortgage quote, you get an APR calculated as well as the interest rate. The APR is the effective interest rate when fees and points are considered. If the APR on the new loan is less than the interest rate (not APR) on the old loan you will eventually come out ahead. How long you need to hold the mortgage before you break even is more complicated, but the greater the difference the faster to breakeven.
That’s cool, I’ll call Vanguard and see if they have a foot in the door there. Can’t imagine they wouldn’t.
I did the same. I’d come out ahead with a shorter term, but I like a built-in partial safety net.
Next question: I have received some online quotes but thought I’d call a local (very local) mortgage broker. We had a good conversation, and he can (currently) get me the same rates I’m seeing. My questions on two of his comments:
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my closing costs (Georgia) would be about $3,500 (no points or origination). $780 of that is Georgia tax; as I’m typing this I realize that some of that almost certainly would be at least 2 months escrow (probably $900ish); attorney fee; appraisal. I’m sure I’ll get a breakdown, but at first blush it sounded high to me, but maybe not.
Does that seem about right, generally? -
the process will take about 40 days. That seems crazy-long to me, but it’s been quite a while since I’ve done one. Any thoughts?
I don’t know how things work in Georgia. ($780 tax sounds high, but again, that might be how it’s done in Georgia.) Escrow shouldn’t be including in the costs. (You would get back the money you have in escrow with your current lender, if any, and in any event, you can request the escrow account be closed and money returned after a year or two.)
I don’t know what attorneys charge, but also think that absent unusual circumstances having an attorney for a mortgage is a complete waste of money.
Title fees depend to some extent on the size of the loan. The title insurance amount is dependent on it; it’s also influenced by whether or not it’s a refinance.
40 days does not seem unreasonable to closing. I don’t know why it might take so long, but it frequently does. (FWIW, the one I just did took a month. The guy doing the one I’m currently doing estimated about 40 days or so.)
I did the math over and over and over again and from what I can tell, lowering my rate from 4.49% 30yr (I am 10 years in) to 2.81% 15yr (the rate at the bank I’d prefer to be with) will save me almost no money and one month of time.
Sounds crazy I know BUT I pay an extra $100/mo towards my principle, and have been doing so for 10 years. At the current rate I’ll be done in Sept 2032 and will have paid about $75k interest (I have already paid $53k interest). If I refinance for 15 years, with a monthly payment of $10 more, and still pay an extra $100/mo, I will be done in August 2032 and will have paid $71k interest.
I figured all this out using this calculator.
So, I think I am pretty confident staying where I am. Not that I can’t shave off some money vying for a better rate or something but I think when your housing cost are low like mine - $150k purchase price in 2005, refi to this current setup in 2010, now down to $95k owed - messing with refinance doesn’t end up making such a huge difference.
I will take @Hampshire’s advice and throw some extra extra money at it every so often. I might even be able to raise the extra monthly to $150 or $200. After all it’s a 4.49% return on that money right?
How is it with a 20-year loan?
The problem you have is that a lot of the closing costs are fixed and not proportionate to the loan amount, for example an appraisal if you need one, various title and recording fees, origination fees etc. This makes them a much higher percentage of the loan for small loans than for large ones, and since the interest rate savings is proportionate, the interest savings can be wiped (and then some) by these fees.
I roughly ran some of your numbers and even with only $95k outstanding it still looks like you could save some on the interest and payoff time. A flat out $95K 15yr loan at 4.49% gives you a P&I payment of $930/mo. Add $100 to that each month ($1030) and you end up paying about $30k in interest and finish in April 2033.
Refi to A 2.81% 15yr. and the P&I is $851. Add the additional $179 each month to match the $1030 you were paying at the higher rate and I have your bottom line at $16k total interest and paid off November 2031.
My monthly payment is $636 P&I, $1003 after property tax, insurance and extra P.
I’m a 41 year old single woman with my own business. I bring home about $2800/mo after tax, which with a small business can be $0 at any moment. I’m really not trying to spend too much of my income on housing. I mean, I have like zero savings as it is.
I appreciate the math help and heads up but I think I’m in a pretty good spot! 
My preferred lender doesn’t offer 20 year, it seems.
Of possible interest to those following this thread, there’s been a half a point added to all refis. See: FHFA Drops a Bomb; Your Refi Just Got Much More Expensive!
The FHFA, Fannie and Freddie’s regulator, is implementing a new price adjustment for all refinance transactions of 0.5% of the loan amount (i.e. $1500 on a $300k loan). This applies to loans delivered to Fannie/Freddie in September and thereafter, which is almost all of them that aren’t already well underway.
I’m actually in the process of a refi myself and my loan officer tells me I’m OK since I’m already locked in. Though he says the fee will apply to the loan since we will probably close in September, just that it will be absorbed by the lender (he says it will consume the entire profits from the loan).
But basically, anyone who is not locked in just got socked. (Note: this only applies to refis, not new purchases.)