OT- refinance options

[sjbraun]

We're looking to "refresh" our kitchen and have a couple of options to finance the project.
It looks like the cheapest way to fund the project will be to refinance our mortgage. The cheapest option (in terms of monthly payments) is to finance with a 30 year loan.
We are 5-7 years from retirement and aren't sure if we'll stay in this house forever or downsize (or relocate) when we retire. I don't feel a need to pay off our loan before retirement. We were lucky and purchased our home during a locally depressed market in 1989, so our house payment is less than what my kids pay for rent. Nor do I see that we need to accumulate more equity than we have now. (We currently owe 1/3 of our home's value.)
Is there any downside to refinancing with a 30 year loan? Current interest rates mean the refinanced amount will not increase our monthly payment, so the refi feels like almost free money. I know that nothing is ever free, so I query the wisdom of this group: Am I missing something in thinking that a 30 year loan is the way to go?

-Steve

[oldpotatoe]

We're looking to "refresh" our kitchen and have a couple of options to finance the project.
It looks like the cheapest way to fund the project will be to refinance our mortgage. The cheapest option (in terms of monthly payments) is to finance with a 30 year loan.
We are 5-7 years from retirement and aren't sure if we'll stay in this house forever or downsize (or relocate) when we retire. I don't feel a need to pay off our loan before retirement. We were lucky and purchased our home during a locally depressed market in 1989, so our house payment is less than what my kids pay for rent. Nor do I see that we need to accumulate more equity than we have now. (We currently owe 1/3 of our home's value.)
Is there any downside to refinancing with a 30 year loan? Current interest rates mean the refinanced amount will not increase our monthly payment, so the refi feels like almost free money. I know that nothing is ever free, so I query the wisdom of this group: Am I missing something in thinking that a 30 year loan is the way to go?

-Steve

I retired and I have about 15 years left on our mortgage. I will let my sons either pay it off or sell it. Disposible income(low monthly payment), was our priority.

The only thing I would worry about is the market tanking and have the mortgage $ higher than the value of the house. No big deal as long as you can make the payments, but if ya gotta sell, that might hurt.

[fuzzalow]

The pricing stability of the specific real estate region might play a part (location, location, location) but as you have been in since 1987, there is not much risk you'll find yourself underwater on the loan.

Sure, there's no such thing as free money - your closing cost, points paid, fees etcetera are all imputed additions to the running life of the loan payments. The only item that sounds out of place is the ability to cover the new loan amount by the entirety of the interest rate change - that's a very big spread.

[Ken Robb]

We rarely recover the total cost of a remodel so you should consider how much enjoyment you will get from it during the time you expect to live with it. I can't judge the financial aspects of a refi since I don't know the details of your current loan.

Since rates on 30 year loans are now so low and close to adjustable and/or 15 year loans I would get a 30. Assuming there is no pre-payment penalty in effect beyond the time you KNOW you will own the property you will be free to accelerate payments effectively making it a shorter term loan or pay it off entirely whenever you wish.

Why not pay cash for the remodel?

[jds108]

If the chances are that you'll only be there 7 more years, why not just get a 7 year ARM for the lower interest rate? If you think that the chances are that you'll be there longer than that, just get the 30 year since it sounds like it's not a priority to get it fully paid off.

[moose8]

Aside from the wisdom of doing so, now is a great time to refi. I just locked in a refinance rate on Thursday. It was 3.375 for a thirty, 3.125 for a twenty, and 2.875 for a fifteen no closing costs or points. I'm trying to decide myself between which one to go with. Seems to me for a slight interest penalty the 30 gives you lots of breathing room month to month compared to the other options. But if you don't make extra payments to the principal you end up paying 2-3 times the interest over the life of the loan - so while it makes life easier now, it makes it less better in the future when there might be like $100,000 or more you spent on interest you could have invested.

If you have equity a line of credit is possible too - I just got one at 2.5% as part of the refi.

[Sean Mac]

Moose8 - I am curious about where you refinanced.

I currently have a mortgage with a small local bank that I would like to refinance. This bank can't match the rates that I can get through my local branch of a national bank. I hate to give up on my local, but the rates available from the national branch are hard to resist.

I have not considered any of the national chains (such as Quicken Loans). I am curious whether any of you have dealings with such companies.

Did you manage your refinance yourself or did you work with a mortgage broker?

[Ralph]

One of the things folks learned in the last real estate market melt down is that real estate is just like all other investments. It fluctuates in value just like all the other investments. I don't have a mortgage on my home, and lately have been thinking I have way too much money tied up in one investment. Been thinking about some various ways to take about half out and put that money in something more liquid and safer. As a retired financial consultant, I know how to keep money safe, probably just use some Vanguard funds.

Been thinking about some of the new reverse mortgage products for folks over 62. These are different from the ones you see in the TV ads with Fred Thompson, where a person takes a regular payment from his house. I don't need more income, but want to get money out of my paid for house in one big lump sum without selling it....and still not make payments. You can take a 50% or more (depending on your age and equity) loan on your home, about 3% variable rate, never make a payment, never get kicked out of your home, and either sell the house or pay off the mortgae any time you want. I believe that variable rate reverse currently has no points or fees. Loan grows at mortgate rate, and if house grows in value about the same rate as loan, you're fine. If it goes against you, well house can drop in value no matter how you do it. Fixed rate has lots of fees, but I'm not afraid of rising rates for a few years in variable. Those over 62 should be aware of these new products. I have found few real estate folks know how these things work, and confuse the new products with the old products. Folks are even using these products to buy homes. To me.....it all depents on interest rate and fees, to determine if they work or not for you. But you can Google "using reverse to buy a home" or "to refinance a home" for info. Almost every one I talk to about these products initially think they are a bad idea....untill they study on it some, then they see how it could be a good idea for some.

[Mikej]

I have this problem with paying interest-I mean a real problem. I have a mental problem about it. Just input the mortgage amount with the points and look at the total interest paid on a 7 15 20 and thirty. You could pay for the kitchen with the savings of a 15 vs a 30 for a minimal monthly payment increase- I'm talking cancle cable and you may have an extra 50k saved in interest. Did I mention I hate bankers?

[Louis]

Why not pay cash for the remodel?

+1

Wait a bit on doing the work, save for a while and pay cash.

(Unless you like playing around with the stock market and are confident in getting returns that exceed the interest rate + misc other costs you'll have to pay for the home-improvement loan.)

[Louis]

I have this problem with paying interest-I mean a real problem. I have a mental problem about it.

I don't. Being able to get something you want now rather than getting it, say, 15 years from now, is good; and someone who allows you to do that should be rewarded appropriately.

[nm87710]

Good Luck

[Mikej]

I don't. Being able to get something you want now rather than getting it, say, 15 years from now, is good; and someone who allows you to do that should be rewarded appropriately.

Then I buy it, otherwise I look at the least amount of somebody else's Lexus payments I have to make. your opinion may vary.

[moose8]

Moose8 - I am curious about where you refinanced.

I currently have a mortgage with a small local bank that I would like to refinance. This bank can't match the rates that I can get through my local branch of a national bank. I hate to give up on my local, but the rates available from the national branch are hard to resist.

I have not considered any of the national chains (such as Quicken Loans). I am curious whether any of you have dealings with such companies.

Did you manage your refinance yourself or did you work with a mortgage broker?

I went with a place called Leader Mortgage. It was weird because I spoke with like 8 different banks/brokers who weren't coming close to what I got but then a friend told me to use them and said there was no point to shopping around as he had previously and discovered they were the lowest. I know I sound a bit like an informercial but I really was surprised how much better they were than everywhere else i looked.

[Louis]

Then I buy it, otherwise I look at the least amount of somebody else's Lexus payments I have to make. your opinion may vary.

Agreed, I feel the same about most stuff (cars included) but most folks don't have, say, $350,000 lying around to purchase a home.

Besides, as I pointed out above, if you aren't stupid about it a home can be a good investment, especially if interest rates are very low, as they are these days.

[jlwdm]

Go with a shorter term and a lower rate. Keep the interest rate down and the closing costs down.

Jeff

[Mikej]

Agreed, I feel the same about most stuff (cars included) but most folks don't have, say, $350,000 lying around to purchase a home.

Besides, as I pointed out above, if you aren't stupid about it a home can be a good investment, especially if interest rates are very low, as they are these days.

yep- it's just that smaller loans can really be expensive, I never paid cash for a house or car, but always made it hurt a little to get as short of a loan as possible and pay as little interest as possible. Don't get me wrong, I've paid interest in my life, I just don't like to get used to instant stuff at a high expense, house and cars aside. I guess it all depends on the op and his wants and needs.

[93legendti]

We're looking to "refresh" our kitchen and have a couple of options to finance the project.
It looks like the cheapest way to fund the project will be to refinance our mortgage. The cheapest option (in terms of monthly payments) is to finance with a 30 year loan.
We are 5-7 years from retirement and aren't sure if we'll stay in this house forever or downsize (or relocate) when we retire. I don't feel a need to pay off our loan before retirement. We were lucky and purchased our home during a locally depressed market in 1989, so our house payment is less than what my kids pay for rent. Nor do I see that we need to accumulate more equity than we have now. (We currently owe 1/3 of our home's value.)
Is there any downside to refinancing with a 30 year loan? Current interest rates mean the refinanced amount will not increase our monthly payment, so the refi feels like almost free money. I know that nothing is ever free, so I query the wisdom of this group: Am I missing something in thinking that a 30 year loan is the way to go?

-Steve
What's the effective rate of the refinanced loan after taxes? Can you do better with the lump sum of cash in other investment vehicles? That's what I look at. That and liquidity.

If I was 5-7 years from retirement, I wouldn't be using cash to pay for a remodel.

These things are easy to overthink and much depends upon your money philosophy.

[paredown]

I like the idea of a "refresh" rather than a complete remodel--it will give you the enjoyment of a more useable kitchen over the next seven years, and should make the house more salable. A judicious $10k-$20k (cabinet refacing, new counters, upgraded appliances) seems to me to be better value than the total gut reno.

We did one year before last for a customer--moved walls, new beams etc. All in it was over $100k, and although it was beautiful and functional when it was done, I doubt it moved the price of their house very much if they had to sell it.

I would be tempted to match the loan to the expected life of the asset--in this case, looking for a home improvement/home equity loan over 7 years...