trying to advise friend -- is it wise to refinance to a 15-year mortgage?

[Anonymous]

IMO... Unless cash flow is totally secure, get a 30 yr and pay it off in 15. You can adjust if needed and pay on the 30 yr payback if needed.

[Anonymous]

Anonymous wrote:IMO... Unless cash flow is totally secure, get a 30 yr and pay it off in 15. You can adjust if needed and pay on the 30 yr payback if needed.

+1. I've always heard that you can pay off a 30-year in 15 by just paying extra on the mortgage every month and thereby save the costs of refinancing. You'd also have the flexibility of the lower payment if you ever needed it. It doesn't fix the PMI problem, but I do think there may be ways to get out off PMI once you get to a certain level of equity in the house. I wouldn't refi to the 15-year because of the risk that something goes wrong later and my income goes down.

[Anonymous]

You should not be advising this friend.

[Anonymous]

Anonymous wrote:You should not be advising this friend.

Okay. I'm not going to. I'm going to let the friend read this thread.

[Anonymous]

Anonymous wrote:

Anonymous wrote:IMO... Unless cash flow is totally secure, get a 30 yr and pay it off in 15. You can adjust if needed and pay on the 30 yr payback if needed.

+1. I've always heard that you can pay off a 30-year in 15 by just paying extra on the mortgage every month and thereby save the costs of refinancing. You'd also have the flexibility of the lower payment if you ever needed it. It doesn't fix the PMI problem, but I do think there may be ways to get out off PMI once you get to a certain level of equity in the house. I wouldn't refi to the 15-year because of the risk that something goes wrong later and my income goes down.

Well, you have to pay a lot more extra to pay off a 30-year in 15 than you would pay if you just got a 15-year with a much lower interest rate.

that's the key here. The rate for the 15-year is over a full percentage point lower than their current rate and would mean the PMI would drop off. That's a pretty big difference. But it comes with locking yourself in to a higher payment.

[Anonymous]

Anonymous wrote:

Anonymous wrote:IMO... Unless cash flow is totally secure, get a 30 yr and pay it off in 15. You can adjust if needed and pay on the 30 yr payback if needed.

+1. I've always heard that you can pay off a 30-year in 15 by just paying extra on the mortgage every month and thereby save the costs of refinancing. You'd also have the flexibility of the lower payment if you ever needed it. It doesn't fix the PMI problem, but I do think there may be ways to get out off PMI once you get to a certain level of equity in the house. I wouldn't refi to the 15-year because of the risk that something goes wrong later and my income goes down.

Yes but you typically get a lower interest rate on a 15 year mortgage than a 30 year, the OP said the rate was 1% lower. With a $750,000 30 year mortgage at 4% paid off in 15 years, you would pay $65,000 more in interest over the life of the loan than if you took out a 15 year mortgage at 3% and also paid it off over 15 years. Also many people "say" they will pay off a 30 year mortgage like a 15 year, but how many actually do. The mandatory financial discipline from a 15 year is worth something as well.

[Anonymous]

We just did this. 15 year at 2.5% - increased our payment about $600. We are psyched. Will be mortgage free at 51!

[Anonymous]

the other variable here is how much they have in a rainy day fund. If they have no such savings, then go with the increased flexibility of the longer term loan. If they have enough for 6 months to a year of living expenses, then go for the shorter term loan.