Personal Investment & Financial Planning Q`s/Re: Home mortgage payoff/smart payoff

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Hello John-My question is re:our home mortgage.Current balance is $329,642.87.We received a HAMP refi 5yrs. ago (that helped us keep our home). Initial %rate was 2% for 1st 5yrs, then 1% max increase each yr. until interest cap reached on March1 2018. "The int. rate cap equals the market rate of interest charged by mortgage lenders on the day your final mortgage mod. agreement was prepared"(?) Our loan is set to go to 3% on March 2016, 4% March 2017, and 4.875% March 2018, where it will stay for 396 mos. WEllS FARGO letter shows payment amnt brkdwn and total pymt amnts with escrw. Our hme is currently valued at $630,000. or so. The HAMP deal included a $47,305. "second" that is there, but not accruing interest. We are 62 and 52. We did what was needed at time to keep home and want to pay off our home sooner than 30+ yrs! Is the int. rate schedule competitive with current int.rates? Is the schedule a "good thing", at least for now? The pyment will not be a problem for us. But at w
hat point is another refi a good idea? We are mulling over at what point it would be better to sell, and buy a smaller home. Our goal is to have a "paid for" home to retire in. 30+ yrs payoff is unrealistic given our ages. We love our home. Is there a smart way to pay it off earlier, say in 15 years, and what would that entail? We want to get a direction to go in with the goal of hoping to retire in current home, pay of within 15 yrs., and be smart/knowledgeable about when an IF we should refi, given the int. rate increases over the next few years where it will cap at 4.875%. Any info you could give or point us to would be so appreciated. Thank you!"

Answer
Hi Kathy,

Based on the information you provided, it seems as thought the rate you have locked for 2016 and 2017 are good rates. In 2018, when the rate can jump to 4.875%, this then becomes an above market rates based on where things are at today. Generally speaking, a 30 yr fixed  mortgage is around 4% and a 15 yr fixed is closer to 3.5-3.75%. If you decide to sell your current home and buy a smaller, then it sounds like you will most likely take out a mortgage of some sort, so if you decide to do this within the next 2-3 years, then a refi of your current mortgage most likely does not make sense. With this being said, if you do stay in your current home and the desire is to pay it off early, then you can always make additional payments to principal each payment or at any point in time throughout the year. You will just need to indicate it is an extra payment to be applied towards principal. In addition, if you decided you will stay in your current home for a long period of time and also pay the mortgage down at a faster rate, then there would be a break even to calculate to determine under what circumstances a refi could make sense and when. Bottom line is that your current rate for 2016-2017 are below market and in 2018 it becomes higher than where standard rates are today; although rates will most likely go up between now and 2018. I hope this helps.

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John D Smith, CFP

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I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related comprehensive wealth management and investment concerns.

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I have been providing fee only investment management and comprehensive wealth management services for the past 19 years.

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I have a degree in Financial Planning & Counseling and I am also a Certified Financial Planner practitioner.

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