15-Year Mortgage Refinance Experience and Thoughts 2011

Over the weekend, we signed the closing documents for our refinancing into a 15-year fixed rate loan. It’s hard to believe that less than four years ago we bought our first house with a 30-year loan at around 6%. Thanks to additional principal prepayments and lower interest rates, our new monthly payment is actually lower than the payment from our original loan. Our lender sounded swamped with loan applications, and we basically closed on the 45th day of our 45-day interest rate lock. Here are some thoughts about the process.

Mortgage Rates Still Dropping
Here’s a chart of the historical mortgage rates, courtesy of HSH.com. It includes the 30-year fixed, 15-year fixed, and the 5/1 30-year adjustable. I’ve stopped trying to predict future rates, and just try to take advantage of what happens. National averages since 2010:

Since 1986:

Appraisal
It may be hard to believe, but the new appraisal for our house actually came in at 6% above our purchase price in late 2007. We have made several improvements to the house, including adding a small amount of square footage. But the main reason is simply that the prices in our neighborhood have held up well during the national price declines. Real estate is definitely local. As a percentage of our original purchase price, we have 35% equity.

Closing Documents
The new final HUD-1 settlement forms seemed to be clearer than what I remember last time. Charges are broken down more clearly, and the form compares side-by-side what was presented on the Good Faith Estimate (GFE) and what you were finally charged at closing. You can view a copy of the form at HUD.gov.

Mortgage Offset Account
Some people prefer 30-year mortgages because borrowing at low rates for a long period can act as a hedge against higher inflation. I personally would rather minimize my interest costs now and worry about higher rates if and when they come along. When the day arrives where I can invest in safe bonds or bank CDs that pay higher rates than my mortgage rate, then I plan on creating a mortgage offset account where I buy those CDs instead of paying down my mortgage. But either way, I’m still not satisfied with a 15-year payoff, our goal is to pay it off in 5-10 years.

Compare rate quotes from and Quicken Loans.

Comments

  1. I am about to close on my second re-fi (bought in 2003, re-fi’d in 2009). All have been 30-year fixed (wanted the flexibility; closing costs recouped in 18 months) but with accelerated payments, I plan on paying off in 15-18 years. The appraisal came in 120K and 100sf less than it did in ’09. Still more than I paid, but surprised at the big drop considering this area is fairly stable.

  2. Jonathan – who did you use to refinance and what rate did you get? Did you pay any points?

  3. Money Beagle says:

    Congrats! We just started the process of hopefully doing a similar re-fi, from a 30 year 5.875% mortgage to a 15 year 3.375% mortgage. The base payment would go up slightly, but we currently send extra every month from a paid off student loan, so it would actually be slightly less than what we currently pay. I’m hoping it all goes through. Next step is the appraisal. I know we’ll take a hit here from what we paid in 2007 but unless it comes through 25% less than what I estimate our house being worth, we should qualify and hopefully move forward. This post gives me hope :)

  4. & we were paying 8%+ in just 1999. A 15-year loan today would be about $1300/month (same mortgage balance) versus $1800/month we were paying in 2001.

    “Some people prefer 30-year mortgages because borrowing at low rates for a long period can act as a hedge against higher inflation.” I am *some people,* except for when it comes to these insane low interest rates. I am very pro-30 year mortgage. But my tune has changed with current interest rates.

    I am personally on the fence with job situation, economy, etc. If I owed $10k less on my mortgage, I’d probably be jump. In the interim, I figure who knows – maybe rates will stay low enough for us to make the jump in a year. We have tended to refi every 1% drop down (no crystal ball to know to wait). We are at 4.875% salivating over 15-year 3.375% or so.

  5. Sorry to hear about the higher appraisal. That’s only good news when you sell, not when you buy, refinance, or pay your taxes.

  6. Jonathan, your post is just in time. I’ve been “salivating” over a 15yr refi for the past few weeks being that rates are so low. I have a friend who does lending who could get me a 15yr refi at 3.15 (no points), vs the 4.375 that I have on my 30yr. Payment would jump from 735 to about 990. It would take me about 2 years to see the benefit of doing this (point of break even from the closing costs). What’s your take? Would it be worth it, if I can afford it the extra 250/mo?

  7. Does a refi appraisal really affect your prop taxes?

  8. @ Scott, TJ

    Higher appraisal is definitely good news when you refinance and buy. It gives you a lower LTV, which banks love.

    Appraisal is not the same as assessment. Tax assessments don’t usually reflect higher appraisals, so Jonathan should be just fine. His taxes won’t increase because of it.

  9. Captain Cheapo says:

    A refi appraisal is not admissible in a property tax appeal. You must provide your own appraisal (non-bank) and then the appraiser must be available to testify at the hearing.

    We close on our no-cost refi on Thursday. We purchased our home this January. We are going from a 30 to a 20-year. From the time we went under contract on this home, to the time we closed, interest rates had gone up .5%. We were pretty annoyed about this, but there was not much we could do about it. Now it was a blessing. It would not have made sense to refi as the rates are about 1% lower today from our current rate, but only about .5% lower than where the rates were when we went under contract. It’s funny sometimes, how these things work out.

  10. what rate did u get?

  11. Captain Cheapo says:

    We locked 3.75 on the 20-year. Wife and I have over 800 credit. We also have a sizable mortgage on a multi-family with 20 years left that we are considering to go down to a 15 on, but we probably need to see a 1.5 on the ten-year to see mortgage rates drop enough for it to make sense for us. Track the ^tnx if you want to see where rates are going.

  12. We purchased in March 2011. Only made 6 payments so far. FHA loan 3.5% down, 30-year at 4 3/4. FICO 747 then, now 716. Does it make sense to refi? I don’t really want to go to a 15-year because I wouldn’t be able to max out Roth and 401k if I did that.

  13. We just closed last week with cashcall and got a free closer refi 15yr @3.25%.
    Surprisingly the whole process really took 15 days as they said from the beginning… I’m waiting now to see to who will they sell the loan…

  14. I switched to a 15 year from a 30 year quite a few years ago. About seven years ago I made the decision to pay off the entire outstanding amount. At the time the rate on the load was around 7.5% and CDs were paying 4% or so. Was thinking about refinancing then but couldn’t really make the numbers work. The entire loan about eight years in was pretty much principal at the time. Had the cash so just paid it off. In CA I pay enough in state taxes to not worry about itemizing even with paying off the mortgage. No better feeling then owning your home debt free.

  15. Captain Cheapo,
    How is your rate going up a blessing? The only thing you got from it was paying more money for the better part of a year. You could have still refinanced now if you wanted to. If rates drop another .5%, will it turn back into a curse, because if you had gotten the lower rate then you couldn’t have refinanced this time, so you can refinance next time?

  16. For less recent FHA loans, a refinance usually means higher MIP costs despite lower interest rates, meaning out-of-pocket is a wash

  17. Captain Cheapo says:

    David…You are absolutely correct. But it won’t go down again. Right? :P

  18. In this environment, I’d recommend refinancing with negative points. You can usually get negative points for 1/8 or at most 1/4 higher interest rate.

    I got a 3 3/8 15 year loan with 1 negative point and waived application fees, so I should get back around the $500 after closing/title/taxes. I was able to get my bank to match market values to keep me on board. (amerisave, zillow rates, etc)

    Last year I refid at 15 year loan with negative one point at 3 7/8, so I got some cash back.

    I’d stay stick with negative point options. As long as they are paying you to refi, you don’t have to worry about rates dropping again and you still get great rates.

  19. I refinanced through a local bank and got 3.875% with over 2 negative points. I think folks should be able to do better than that now. I didn’t really need that many negative points, it got a little complicated, but that’s what I ended up with. I’ll eventually just put the cash I got back into the mortgage.

    My higher appraisal has nothing to do with my tax assessment, I’m pretty sure. My homeowner’s insurance did go up a little bit, but something like $20 or less a year.

    @Evan – I would try to get as close to a “no cost” refinance as possible, and then compare your options.

    @Naveen – Talk to someone, and let a broker or lender run the numbers for you. I also would not go for a higher mortgage payment if it meant I could not max out my retirement accounts like 401k and IRAs.

  20. Great timing on the post, J. I’m currently purchasing a house and will be closing in october. While shopping rates I used google advisor (click mortgage tab). It’s a great way to initially get an idea of what you’ll be able to get. When shopping lenders you can go with a Big bank, Credit Union or broker. I found the most competitive rates with brokers. All you do is get estimates from two and have them keep trying to undercut the other. Also, make sure they’re not all pulling your credit score. Just tell them you been shopping around, know your credit score and would like to know if they can beat what you’ve seen (from other lenders or google).

    I’ve been watching rates the last month and September 22nd was the lowest I’ve seen it go all month, especially after the fed announced operation twist. The lowest I saw for a 30 year, new purchase with excellent credit was 3.75% with 0 points.

    Also, for those shopping around ask your lender if there’s a fee to lock in the rate and if there’s a fee to renegotiate. Many times, if the rate goes down .25% before you close, you can renegotiate your rate.

  21. Wonder why you got only 3.875%?
    I’m closing next week on a 3.5% no cost (nothing at all out of pocket due to negative points) 15yr refi (down from 3.75% and I probably could have had 3.375 had I waited.
    3.875 seems high (crazy right!) especially since I think yours is a sfh and mine is a condo…
    Any reason?

  22. Enonymous – It’s probably b/c he locked it earlier in the year AND he got 2 negative points. a point will add .125 to .25 to your rate. It just depends when you lock. Right now for a 15 year refi you can def get lower than 3.5%.

  23. We are in the process of a 3.375% no cost 15 yr refi. The rates dropped quite a bit last week (tho they’ve bounced up a bit since Thursday).

  24. I am also in the processs of closing on my refi. 3.25% form 15 yr with no Lender closing cost. other closing cost were@ 1500 for a 240K loan. The surprise was
    the refi was done w/o an appraisal. When I Refi’d last year appraisal was @450K

  25. so, if money is no issue, would you pay off the mortgage loan or still carry it for 5-10 yrs?

  26. FYI, despite being cited to here, Quicken Loans are fairly tedious and will refuse to give you a quotation without pulling your credit report. I’ve checked and re-checked this. I’m glad I made sure; and I’d advise everyone else to pass on them — they’re not especially competitive anyway.

  27. Just signed the paperwork last week on a 15 yr, no point, 3.875% fixed. I have great credit, but the higher rate is due to it being an investment property. You get dinged a bit if you don’t live there…

  28. @gp. IF money is no issue you have to compare the return after taxes on what your mortgage is costing you versus what you are earning after tax on the money you would use to pay off the loan early. Having paid off my 15 year about 8 years in when most of the outstanding loan payment were principal it was a fairly easy decision. It just plain feels good to not have a mortgage.

  29. howard_roark says:

    What were some of the lenders that you chose to do the no cost refis through? Jonathan.. I think that would make for a good post, good no cost lenders since rate are so hot and low…

  30. ratechase, when did you refinance and who did you refinance?

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