Hi, @Archer. I have a question, hope you can help. I have a 30 year mortgage with 256 months of payment left at an interest of 4%. I’m thinking of doing a refi which will cost me $4500 in closing costs. The interest rate would be 3%..My payment will be about $390 more a month but for 15 years vs. 30 years. Would you say this a wise decision?

Also, while I have you on the line...all things beings equal (ventilation, shingle type, climate, etc.), which roof will last longer: one with a steep pitch or one with a shallow pitch? Seems to me a steep hillside erodes more quickly than a low slope, so I'd think that roof shingles would wear out more quickly on a steeply sloped roof.

Thanks!

 

It depends...

 

You need Dr Scabies not AL

 

Yes to the refi.

Go with a 20-oz zinc-tin-coated copper standing seam roofing system.

 

Where do you live and how long do you plan to stay in the house?

As long as it's not leaking yet, buyers probably won't believe the 40 year warranty for premium roofing materials anyway, so you might as well use the shortest life materials that will last as long as you're in the house.

 

I realize your initial post is in jest, but I don't think that you can compare a hillside to the angle of a roof in terms of roof longevity. I don't think the angle of repose is at play with a roof, since the materials are stable rather than loose.

As for the mortgage, if you can swing the additional per month it is always going to cost you less in interest to be in a 15 year - but I'm sure that how long you plan to be in the house is part of the calculation though.

On a side note, I've read several articles lately with regards to paying your house off if you have the means. The biggest gripe I have about these so called financial experts that all state that you should put the money in the stock market rather than paying it off is that they never address how mortgage interest is severely front loaded. It takes almost half the life of the loan before you start paying more to principle than to interest in a year. Several of them stated "you should put your money to work for you where you can earn more than the 4% your mortgage loan costs". Umm, I'm sorry what? If you are lucky enough through windfall or something else to be able to pay off your mortgage early in your 30 year run it's a heck of a lot more than 4% saved.

 

They're treating the mortgage as a bond that you have issued. If you can earn more on your investments than the interest rate on the loan, it makes sense from a time value of money perspective to do that, as long as that interest rate differential exists. The example you cite about the unbalanced amortization schedule is true to a point, though it ignores the tax deductible nature of mortgage interest, for those in the US who itemize - the tax benefits are also greater earlier in the mortgage due to the higher interest component.

It's all about putting your capital to the best use. If you think the value of your home will rise more annually than the interest rate on the loan (which has generally not been true historically outside of recent periods of drastically low interest rates), then it may make some sense to pay down the loan, but not paying it down gives you options and greater liquidity with your capital. Homes are pretty illiquid assets, with high transaction costs associated with a sale. There is benefit to keeping your powder dry, by keeping your money working for you rather than tying up a large chunk of your wealth in the house. Cash is, by definition, the most liquid asset.

 

Once I had a kid and my wife started working less the tax value of mortgage interest evaporated, as my standard deduction was higher than the value of my mortgage interest/property tax deduction. I'm sure elsewhere in the country that's not the case, but In AZ with a $215K mortgage balance it was. On a side note, with current appreciation since the time we've bought, I've managed a 4.5% annual rate of return, as the value has gone up $50K in 4 years.

 

It's not the case here in MA - high property taxes, excise taxes, and mortgage interest still outweigh the standard deduction for many, even with the recent tax law changes. Our house has appreciated about 5.5% annually based on current value, but that's not sustainable over the long-term and is an anomaly historically.