Which Mortgage to choose?

brij2006 · December 2013

So we are refinancing our house, and I want some opinions on which mortgage to go with.

We are looking between the 15yr and 20yr term. The rate of the 15yr is 3.375%, and the 20yr is 4.125%.

With the 20yr mortgage our payment will increase by $34.
The 15yr mortgage our payment will increase by $90.

We currently have a 30yr balloon loan, and are 5 years into our term. So the interest rate will reset, and we would prefer to get locked in at a rate and for a shorter term.

We also have about $45k left in student loans, and have been paying extra toward those. Would you refinance the house into a 15yr loan (which would cause us to put less toward the SL's), or refinance into the 20yr loan and keep putting the same amount toward our student loans? The student loans are between 2.25% and 6.75% interest.

CuriousKiddosMama · December 2013

If you went with the 15 year mortgage how long will it take you to pay off your student loan debt? If that isn't going to change too much, I would do that. We paid off our house this year and it is an amazing feeling, plus it frees up your income so you can do other things with it (we are saving extra for retirement and have a college fund going for our kid.)

brij2006 · December 2013

@vikingsfan71713 It would likely delay the SL payoff by 1.5 years.

H's view is that we should be applying that extra $100/month toward the SL's. Then when those are paid off we can apply the extra money (from SL payments) toward the mortgage, and it would be paid off in 13 years instead of 20.

hoffse · December 2013

Well without know the principal I can't tell you for sure, but I would bet that 15 years of 3.375% interest vs.13 years of 4.125% interest is close to the same thing.

But you would save yourself a year and a half of interest by continuing to pre-pay on your loans.

So I would probably do the 20 year and pre-pay the mortgage once the student loans are done.

brij2006 · December 2013

@hoffse The principal will be $57k. So interest wise, it isn't making that big of a difference when I do the math. Not as much of a difference as paying extra on our SL's will.

smerka · December 2013

You could also look at which way gives you a better tax deduction - mortgage interest or student loan interest.

lifeonthehill · December 2013

brij2006 said:
H's view is that we should be applying that extra $100/month toward the SL's. Then when those are paid off we can apply the extra money (from SL payments) toward the mortgage, and it would be paid off in 13 years instead of 20.

I agree with your H

brij2006 · December 2013

@smerka I didn't even think about the interest. Right now the student loan interest is the most, and we qualify for the maximum amount of interest you can claim. So it's still quite a bit.

MrsAshleyH10 · December 2013

I also agree with your H. I am also of the mindset that it's better to have a little (time and money) cushion just in case.

Mom987 · December 2013

15 year!

Wulfgar · December 2013

In this case, it doesn't really matter since you are talking about only 5 extra years and the difference between will be going to student loans. Especially since the principle is so low, you are going to get more bang for your buck paying off the 6.75% loans first.

Which Mortgage to choose?

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