[quote=Hatfield][quote=harvey]
– Person A took out a 30 year loan 15 years ago. The remaining balance is $100K and the rates is 5%
– Person B just refinanced with a 15 year loan. The balance is $100K and the rate is 5%
[…]
at this point in time they are exactly the same scenario.[/quote]
I think this misses several important differences. 1) where they are on amortization curve. The person with the 15 year loan is almost entirely paying interest at this point. The person 15 years into a 30 year loan in is paying roughly half interest, half principal. You can see where the curves cross pretty clearly in Karl’s Magic Mortgage Calculator linked previously. 2) the person with the 30 year loan has a lower monthly payment. The 30 year guy has the option of making a larger payment if he wants to, but the person with the 15 year loan does not have the option of making a smaller one.
[/quote]
At the point in time I described, the two loans will have exactly the same payments and amortization schedule.
In the first window, enter $100K loan, 5% rate, 30 year (360 payments) Leave payment amount blank – it will figure that out. Press calc to generate the amortization schedule.
Now scroll down – fast forward to fifteen years of payments on the loan. The balance after the 180th payment is $67,884.25
In the second window create an amortization schedule for a fifteen year (180 payment) loan for amount of $67,884.25 at 5%
The payments and schedule will be the same as the remaining payments (181 thru 360) on the 30 year.
—but I am looking at the remaining interest left, which is about $4000 total. That comes out to be at 1.31% apr…So where can I find a 1.5% or higher return that is guaranteed over the next 3 years?—
You made a math mistake in there somewhere. If your loan interest rate is 2.75%, there is no scenario where you’d be better off investing at 1.5% versus paying the loan down further.
