Refinancing

[Emo EMAW]

I would assume home loans is the "last" debt you would have, so really the question is what investment vehicle would the money otherwise go in.

[Mrs. Gooch]

#3 Make the new loan the same or shorter than the amount of time currently remaining on your loan or else you will lose a bunch of the benefit of a lower interest rate.

Let me give you an example.
Let's say you have $50,000 left on your mortgage which currently has 10 years remaining and a rate of 3.8%.
But you decide to refinance at a rate of 2.8% but you think "Wow that's a good rate. I should make the loan as long as I can." So you make it a 20 year loan.

If you had stayed in your original loan you would have paid $10,178 in interest in the remaining 10 years.
But with the new loan you pay $15,357 in interest, not to mention the closing costs.

[Rage Against the McKee]

You aren't considering inflation and opportunity cost, Mrs. Gooch.

[Emo EMAW]

It's because she has huge feet.

[chum1]

Anyone here doing a reverse mortgage?

[CNS]

No, but I have a property I want that currently has a 94 yr old living in it and have wondered if there is such a thing btwn private parties.  For example, I pay her whatevs a month until she kicks, upon which I finalize the rest of the sale through her estate and fully purchase the property for whatever the cost agreed upon is minus the total of my payments to her. 

Anyone heard of something like this before?

[Mrs. Gooch]

You aren't considering inflation and opportunity cost, Mrs. Gooch.

I said it depends on where you would have put your money if not paying off the loan.

Let's say you can afford a $501 payment each month and you have two options where to put it...
1. Pay toward your loan.
2. Put in a 1% earning bank account.

Option #1:
Keep your current mortgage ($50k at 3.8%). For ten years pay $501 toward the mortgage. For the next 10 years pay $501 toward the savings account. At the end of 20 years you would have a paid off house and a bank account containing $63,201.

Option #2:
Refi to the the 20 yr 2.8% mortgage. For the next 20 years pay $272 toward mortgage and $229 to the bank account. At the end of 20 years you would have a paid off house and a bank account containing $60,813 (assuming a no closing cost refi). (So actually it would be quite a bit less than this assuming you had financed the closing costs.)

Now obviously this all depends on the interest rates you can get now and in the future, how often interest is compounded, etc, etc, etc.

[Emo EMAW]

Sounds like a wet works op there CNS.

[CNS]

Sounds like a wet works op there CNS.

I was thinking it would be a win/win.  Judging from the maint, she needs the money, and I want the land.

[Tobias]

she's a ghost that hasn't happened yet, cns

[catastrophe]

Mrs. Gooch seems to know what she's taking about here.

Also, I'd rather not be in debt than take advantage of opportunity costs. I'm currently dividing extra money between extra principal payments and low risk ETFs. I'll explore higher risk investments when it really feels like I'm playing with house money.

Edit: just realized that was a pretty great pun.

[CNS]

Preghost. 

[catastrophe]

Sounds like a wet works op there CNS.

I was thinking it would be a win/win.  Judging from the maint, she needs the money, and I want the land.

I guess you're not in a position to just buy the house now and rent it back to her for a reduced rate?

[Mikeyis4dcats]

We've refi'd twice, but mostly because Cap Fed allows you to just pay a fee to re-set your rate.

[CNS]

Thought about that initially.  I mean, I would love to do that, get the property divided with the city, and start developing the side I would want to build on eventually with weekend work to get driveway, shop, etc installed.  However, I don't think she goes for that.  She currently lets her one kid use the land in question to store a bunch of crap.  The son is broke as hell too and lives in an RV.  so, when she kicks, he isn't wanting a house that needs a decent amt of maint.  He is going to want money.

I don't think she would tell her kid to get his crap out.  I do think she would take monthly income, though.

Eventually, I want the land next to the house, and will either rent the house or fix/divide/sell and get the land I want for very little money.

[ednksu]

Trying to figure out Mrs gooch's numbers, please post the calculator you're using.  Seems like you're also not factoring loan repayment structure (principle v interest).