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Analyzing Current Loan vs. New 15/30 Year Fixed Loan

May 20, 2009 | Mortgage Loans | My Ramblings | 2 Comments
analysis

I’m in the process of refinancing our mortgage.  I’ve debated whether or not to refinance to a 15 vs. a 30 year fixed loan or keep my existing loan.  I ran the numbers and it was hard making a final decision.  There are pros and cons with all three scenarios.  

Fortunately, I’m able to refinance because I have a Freddie Mac loan.  My mortgage company is able to refinance the loan without a formal appraisal, which would have caused problems due to current market value my home.

After some careful analysis I decided to go with a 15 year fixed rate at 4.25%.  I just couldn’t pass on the rate.  My existing loan is a 30 year fixed at 5.625%. My out of pocket cost to refinance the loan will cost approximately $1,187. My mortgage will increase by $147 per month which isn’t too bad.  I expect my property taxes to drop due the value of my home falling which will offset the additional $147 per month.

When I initially purchased the house if I had went with a 15 year fixed it would have increased my mortgage by approximately $350 per month, which I didn’t want to pay at the time.  I have paid 6 years of my existing 30 year mortgage, so now I will have 15 years left.  I suspect we may live in the house for at least an additional 5 years but you just never know what may happen in the next 5 years.

The answer to the question of whether to choose a 15 year fixed, a 30 year fixed or keeping your existing loan is “it all depends”.   Below are some of the things I considered to making my decision:

  • Current personal financial situation
  • Current mortgage interest rates
  • Interest rates falling vs. increasing
  • How long we plan to keep the house
  • Home equity after 3, 5, 10 years
  • Loan interest savings after 3, 5, 10 years
  • Investing/saving the difference in mortgage payments of 30 vs. 15 year loan
  • Interest left on existing loan vs. interest cost on new loan
  • Extra payments on a new or existing 30 year loan (to reduce life of loan and build equity) vs. 15 year loan

 

When I finally looked at the extra cost per month, the interest rate, money saved in loan interest cost, equity built in 3, 5, 10 years, etc., the new 15 year fixed loan at 4.25% is a great deal.

Related Articles: Is it Time to Buy or Refinance Your Home?

 

 

 

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2 Comments to “Analyzing Current Loan vs. New 15/30 Year Fixed Loan”

  1. JoeTaxpayer
    5:16 pm on May 24th, 2009

    15 yr at 4.25 is great, but you don’t mention the 30yr rate you considered. If the rates are close, for some the flexibility helps. Make just the minimum payment if there’s an issue that month. For others, they have no discipline to make the extra payments year round to get down to 15. Either way, 4.25 is tough to turn down.

    JoeTaxpayer´s last blog post..This past week’s blog reading

  2. Patrick
    7:40 pm on May 25th, 2009

    The 30 year was about 4.75% depending on how manay points you want to pay.

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