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Refinance Question

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denman3369
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Refinance Question  Reply with quote  

Hello, My name is Dennis and I am new to this forum. I have a Question and am curious to see what response I recieve. My wife and I have a first mortgage that we owe 39,000 with a 4.74% finance rate and 5.5 years left to pay. We also have a home eguity loan of 43,000 with a 6.99% rate and 7.5 years left. I can refinance and combine the two at a rate of 3.00% for 10 years. We will continue to make the same 1,400.00 a month payment that we had been paying on the two separate loans, and will be payed off in 5.5 years. Theres about 2000.00 in closing costs and appraisal fees, the houses approximent value is 220,000. My wife is concerned, thinking that we should'nt do this because the first mortgage is paying so much less in interest with only 5.5 years left. But I see the savings in paying off the 2nd. mortgage 2 years earlier and dropping 4.0%. What do you think? Thankyou
Post Sun May 19, 2013 12:33 pm
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oldguy
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Instead of looking at the amount of total interest that you pay, I would look at the best way to increase your family wealth. If you get a 30 year 4% loan, the payment would be under $400/m. And invest that other $1000/m ($12,000) into a mutual fund. At 8% that would be $1,500,000 in 30 years. At 10% it would be $2,200,000.

But it takes discipline - the reason that so many families fail is that they use that extra $1000/m for new cars, vacations, etc - lol - that won't make you wealthy, you have to actually save it. The reason it has worked so well for us is that we have the money automatically taken from our paychecks so we never touch it.

US mortgages are among the lowest cost capital in the world - all of the other 200 nations require that you reset the interest rates, usually every 10 yrs - but in the US you can lock a fixed rate interets at <4% for 30 years. Very Happy
Post Sun May 19, 2013 4:20 pm
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denman3369
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Thanks for the input oldguy, thats deffinately a good way to invest money and will look into it. Thanks
Post Mon May 20, 2013 12:39 am
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naina8888
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Do you believe that mutual fund investment are still safe? I lost 200K in SBI mutual fund program.
Post Wed Aug 07, 2013 2:36 pm
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clydewolf
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Re: Refinance Question  Reply with quote  

quote:
Originally posted by denman3369
Hello, My name is Dennis and I am new to this forum. I have a Question and am curious to see what response I recieve. My wife and I have a first mortgage that we owe 39,000 with a 4.74% finance rate and 5.5 years left to pay. We also have a home eguity loan of 43,000 with a 6.99% rate and 7.5 years left. I can refinance and combine the two at a rate of 3.00% for 10 years. We will continue to make the same 1,400.00 a month payment that we had been paying on the two separate loans, and will be payed off in 5.5 years. Theres about 2000.00 in closing costs and appraisal fees, the houses approximent value is 220,000. My wife is concerned, thinking that we should'nt do this because the first mortgage is paying so much less in interest with only 5.5 years left. But I see the savings in paying off the 2nd. mortgage 2 years earlier and dropping 4.0%. What do you think? Thankyou


Just so you can see how paying yourself first and not the bank can help you, here are some numbers to consider for a hybrid between your questions and Oldguy's suggestion.
Considering closing costs on your Refi of $2,000 making your total mortgage amount $84,000. At 3% for 10 years your monthly payment (no escrow) would be a bit over $810, for 10 years.

If you have been paying $1,400 per month, the difference is $590 per month for 30 years, investing as Oldguy suggests.

The investment at an average of 8% per year for 30 years would be $810,000.
At an average of 10% per year the investment would be $1,200,000.

After the 10 years you would have $118,000 in your investment account. At that time you could increase your investment contribution.
Post Wed Aug 07, 2013 6:36 pm
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clydewolf
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quote:
Originally posted by naina8888
Do you believe that mutual fund investment are still safe? I lost 200K in SBI mutual fund program.

SAFE? as in a bank savings account? No.
Our selection of mutual funds is where the risk comes into play.

Your statement about losing $200K mans little because we do not know the starting point. If you had $2,000,000 at the start, $200,000 is 10%. A lot of money. But a loss of 10% from 2007 to 2012 is not too bad either.

You must stay invested somewhere for the recovery of your loss and continued growth.
Post Wed Aug 07, 2013 6:50 pm
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littleroc02us
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Heck in your situation I wouldn't bother refinancing with such a small term on both loans. Personally I'd attack the equity loan like crazy and eliminate that one first. I just paid off one of our mortgages and it feels great not having that debt on the books. Now we have more disposable cash to invest with and build wealth, instead of using leveraged money as Old Guy is suggesting from your mortgages. You can still build enormous amounts of wealth eliminating both mortgages, your basically just reducing your level of risk. Most investors haven't calculated in risk, which can happen to the best of us. What if the economy goes into a 20 year slump, or what if for god sake you lose your job or become disabled? I'd rather owe no one, than to be heavily in debt. Just a personal preference.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Aug 07, 2013 7:12 pm
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norrisgallagher45
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To homeowners who find the specter of being in debt uncomfortable, paying off their mortgages has always been particularly important. These are the people who accept higher monthly payments than they could ever reasonably afford - just so that they may be free of the burden of a home loan sooner. Now this is the opposite of the kind of irresponsible financial behavior they love to talk about on the talk shows.
Post Tue Aug 20, 2013 9:44 am
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Angelass
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Re: Refinance Question  Reply with quote  

quote:
Originally posted by denman3369
But I see the savings in paying off the 2nd. mortgage 2 years earlier and dropping 4.0%. What do you think? Thankyou


Yes, you might save some interest over the next year, but why not invest the new money in something else that will benefit you in the future?
Post Fri Sep 13, 2013 7:37 am
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Ryaan
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In mutual funds risk is a big factor the riskier is your mutual fund the more return it gives. The selection of risk is very important to earn return. Preferably you should have some high risk funds and some low risk funds, it will balance your over all returns.
Post Thu Nov 07, 2013 10:18 am
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