Betty asked “Tim, what are you thinking about right now with the interest rates below 3% on a 30 year fixed?”
This is a great question. Take me, for example. I have a 3.25%, 30 year fixed loan on my personal residence. And now I'm going, “man, if I can get a 2.85 or 2.75 interest rate and save myself another half a point, maybe I should consider it? “
Why You Should Refinance
Now, why would I consider it?
I'd consider it because I'm going to be staying in the house for another 10 to 12 years because my girls are going to go through middle school and high school in the area. So, I know I'm going to be in the house for an extended period of time unless something crazy happens.
With that in mind, I would be able to recoup the cost to refinance by getting the half a point lower interest rate.
Why You Shouldn’t Consider a 15 Year Loan
Well you may be asking yourself why not wind it all into a 15 year fixed loan at 2.25%? The downside is now you're forced to pay that loan off in 15 years. Whereas if you get a 30 year loan, you can always add more money towards the principal reduction.
Let's say your payment is $2,000 a month and you have it on a 30 year term, so it's a 30 year amortized loan with an interest rate of 2.75.
You also have the option of a 15 year at 2.25. But your payment is going to be higher because you're amortizing it over a shorter period of time. So instead of that $2,000, maybe it's $2,600 a month. Why don't you just get the 30 year term and pay the extra $600? The reason I say that is even though your rate might not be quite as low, you have more flexibility.
What if something comes up? Now, instead of worrying about paying the] extra $600, because you have to, on a 15 year loan, you have extra cash for emergencies like a furnace replacement or other repairs. It's worth giving up a quarter point for more flexibility.
That's what I'm thinking right now with these amazing record real estate interest rates. I'm thinking long term with flexibility.
If you got questions, hit me up. I'm here to help.
