On a refinance with closing costs, would you just add it to your loan balance or not?

[bearishgurl]

[quote=flu] . . . Assumption is that regardless of whether I have a trade me up home in the future or not, this home will not be sold with 20 years. In other words, it’s going into my estate. . . [/quote]

flu, I greatly admire someone as young as you that has the brains AND wherewithal to “build their estate” in this manner.” Even though you may not think so, you are very fortunate in this regard :=]

[Coronita]

[quote=HLS]FLU..
You said that ‘total loan balance is 506,480″
Do you mean total payments over life of loan ?

Having a 15yr payment obligation may affect your ability to qualify for future loans (vs.a 30yr payment)
Many people have caused themselves hardship by getting 15yr loans in the past.

15yr payments vs 30yr payments are about ~50% more.
It doesn’t always make sense though.

** In the BIG PICTURE the value of time/money is not factored into the savings.
Saving $100 a month/$1200 yr/$18,000 over 15yrs
is not the same as paying the $100 more towards
your principal balance every month.

**THE TRUE SAVINGS of any refi is to pay the same payment that you are making now but at a lower interest rate, your compounded savings will be much greater, If you can afford it.[/quote]

Sorry, to clarify my original loan (7months into it would have been $506480)… My remaining loan balance on the 15year would be $498041 (principal $389290)

My point of saving on my monthly payment is mainly to take that payment and either apply it to this principal or part of a loan on a rental…
So in this case of absolutely no cash out (just “cash out” $3k to pay for the loan cost, the extra $148/month savings in monthly payment, I would immediately add that as principal payment on the existing loan OR apply the extra $148/month to a higher cost second TBD loan). Also, even without doing this, I think I would end up paying $22516 less on this new loan over the next 15 years, versus if I were to complete my existing 3.375% loan. (Column E in spreedsheet). Am I wrong?

I’m contemplating cash out. But I would not want to take cash out unless I kept the same the total new loan balance to be <= the remaining outstanding loan balance on my current loan. On my spreedsheet, that would be a cash out somewhere between column L18 and L19 BTW: LTV is < 50% One question I have. Does have a 30 year with a lower monthly increase my chances of qualifying for a second loan on say a rental, or no difference? Sheldon, are you still doing loans? 🙂

[HLS]

[quote=flu]
Does have a 30 year with a lower monthly increase my chances of qualifying for a second loan on say a rental, or no difference? [/quote]

YES! Still out here…
The obligation of a higher 15yr payment will be factored in to your debt ratio rather than a 30yr payment (which is lower)
In effect, that will affect your ‘chances’ of qualifying by raising your debt ratio.
Depending on your other debts & income, it may not be an issue, it depends on your back end ratio.

You may or may not be able to use projected rental income to qualify.

Although converting a primary home to a rental has not been the worst thing for many people in the past, in many cases it is a very poor financial decision to do this, esp if you have a lot of equity.
The emotional attachment is irrational.
***********
Your cost of less than 1% to save .50% on your rate will be recovered in about 20 months.
If you add it to your balance, you can pay down your principal at anytime. You are financing the $3K cost at less than 3% which may be tax deductible for you.

Regardless of anything else, do you mind paying less than 3% to borrow money for 15yrs ?

[Coronita]

[quote=HLS]
Regardless of anything else, do you mind paying less than 3% to borrow money for 15yrs ?[/quote]

Hi Sheldon, I’m trying to understand your question. Sorry, for my stupidness. But do you mean, would I rather prefer to borrow money at a higher rate? What would be examples of why that would be better? To leverage more, is that what your wondering?… Or are you asking if I would rather borrow with a 30yr at a higher rate (I think around 3.80%)?

[HLS]

Just a general concept, not to be complicated by your original question…

Given the opportunity to buy something, would you rather pay for it today OR finance it at 3%.

It becomes a question of whether or not you have something better to do with the money and/or your
projection of the future value of that money.

Some people buy stocks just for the dividends. (I do not advocate this) They can get 3%-10% today (with risk)

The idea that ‘cash is king’ has never been truer.
I have seen multiple situations of people who had 15yr mortgages and got themselves into trouble because of it. They were only focused on a lower interest rate.

They made the higher payments for a few years and gave up extra cash vs. a 30yr payment.

They lost jobs/income and could no longer afford their 15yr payment.
If they had a lower 30yr payment and had saved the difference, they would have been able to continue making lower payments. 4yrs worth of 15yr payments is about 6 yrs worth of 30yr payments.

Unable to make payments, they cannot qualify for a refi and are faced with selling or foreclosure, even if they have equity.

It’s not a matter of right/wrong, but understanding the big picture and projecting
what will work for you.

Most importantly do you have something better to do with the money AND your comfort with the concept of debt and using ‘other peoples money’

I have seen some people do some pretty crazy things with money that they thought made sense.

[Author]

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