Refinance to a 15 or 20 year mortgage

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Lovey

LoanSafe Member
Sep 8, 2012
35
0
6
Our mortgage originated in 2011. It is a 30 year @ 5.125%.
Payoff is 2041 but since we pay biweekly, it's expected to be paid off in 2035. We always pay biweekly as it is easier for budgeting purposes.
We would like to refinance. Closing costs will be rolled into the loan. This is what we have on the table:

Option 1:
20 year @ 3.25, payment lowered by $331. Original pay off is 2040 but paying biweekly will pay off loan in 17 years (2037) instead.
Interest savings of $40,000 (based on biweekly payments).
Pro - lower payment by $331
Pro - earmark savings for extra mortgage payments, replacement cat, college, etc.
Pro - interest savings
Con - extend mortgage 2 years longer than current track we are on even though we pay less overall

Option 2:
15 year @ 2.75, payment increases only $50. Original pay off is 2035 but paying biweekly will pay off loan in 13 years (2033) instead.
Interest savings of $70,000 (based on biweekly payments).
Pro - payoff sooner (2 years sooner than current track)
Pro - interest savings
Con - payment increase by $50

Which would be the best option?
 

OneHugeMess

LoanSafe Member
May 30, 2016
626
58
28
Our mortgage originated in 2011. It is a 30 year @ 5.125%.
Payoff is 2041 but since we pay biweekly, it's expected to be paid off in 2035. We always pay biweekly as it is easier for budgeting purposes.
We would like to refinance. Closing costs will be rolled into the loan. This is what we have on the table:

Option 1:
20 year @ 3.25, payment lowered by $331. Original pay off is 2040 but paying biweekly will pay off loan in 17 years (2037) instead.
Interest savings of $40,000 (based on biweekly payments).
Pro - lower payment by $331
Pro - earmark savings for extra mortgage payments, replacement cat, college, etc.
Pro - interest savings
Con - extend mortgage 2 years longer than current track we are on even though we pay less overall

Option 2:
15 year @ 2.75, payment increases only $50. Original pay off is 2035 but paying biweekly will pay off loan in 13 years (2033) instead.
Interest savings of $70,000 (based on biweekly payments).
Pro - payoff sooner (2 years sooner than current track)
Pro - interest savings
Con - payment increase by $50

Which would be the best option?
I would personally take Option 2 --- however, in my particular case, Option 1 or a 30yr Fixed would be more tempting. You can always make larger payments for an earlier payoff on a 30YR Fixed, but you also have the ability to make smaller payments in lean/bad times.

In the crazy times, we are in, financial flexibility is a big selling point, IMO. But if you already have a substantial emergency fund, and savings... it wouldn't make sense.

Do you have any other debt?