Scott  - The primary reason we refinanced was to roll in a HELOC that we took out to cover a residing project on the house.  The combination of the lower interest mortgage (much better than the HELOC) and going back to 30 years kept the payment about the same.  The calculated break even point was under two years, so that wasn't a concern.

Scott You might not be in the house long enough for the market return to beat the interest rate. I would put down 20% and avoid PMI because it's just throwing money away for no good reason unless you live in an area where housing is unaffordable.

Let me give you a data point. I bought a house in 2003 and sold it in 2014. I sold it for $10k than I paid of it. Additionally, the market was flat during most of that time period known as the Lost Decade. Paying off my loan would have come out ahead... however really we did neither because we were stupid with our money. We weren't putting enough in retirement accounts and we were only paying a little extra on the mortgage.

P.S. We also sold our second house for a $10k loss.

Everyone is right about turning a 30-year into a shorter term by paying more, but one should also specifically look at the rates and run the numbers. Sometimes the difference in rates of different terms can make a significant difference. I've had 3 houses with 6 different mortgages. I went from 30 to 30 to 30 to 20 to 20 to 15. We're on our 3rd house in our mid 40s and the goal is to be done with mortgages by the time we retire. At the time of our most recent refinance, the 15 year was about 0.5% better than a 20 or 30.

Scott said:
Were you able to pay off your PMI early? How does that work?

 About a year after I bought the house the value went up enough that I was already at 80% loan to value.  I ended up needing to refinance into the 30 year fixed at 4% from an original 15 year fixed at a rate I don't even remember (maybe 3.75%?) due to life circumstances, so when I did the refi, PMI went away.  Gosh I hope this is my last mortgage on this house!

Scott said:
Out of curiosity, what were the costs of refinancing, and did you calculate them into the total cost of the new 30 year mortgage?

I went with a local credit union and the costs were ~$3k and yes, I just rolled it all up into the mortgage.  I also had the new 1st mortgage pay off my home equity loan, so my loan balance is higher today than it was a year ago,  but my payment is  less.  I highly recommend shopping around a bunch for the best rate and closing costs and definitely include some local credit unions in that search.  Just do the shopping close together in time because I think the hit to your credit will be less than if you wait in between hard pulls.

I would get a real estate agent and get your agent to take you to a few different neighborhoods and homes in them to get an idea of what to aim for.  When I bought the house it was 2011, a buyers market, but it took almost 6 months of looking at so many awful houses before finding this one that I really love.  I was shopping while continuing to save for my down payment.

Dave Ramsey actually has some great advice on buying real estate that you might want to check out.  He says the best way to win with real estate is to get a really good deal on the buying side by overlooking things that other people will not, like cosmetic issues, but to buy a house with good bones in a good location.

Happy house hunting!

We did something similar to you, PhysicsGal as well. We had to have PMI because we weren't putting enough down, but after 6 months we were able to refinance to get out from under the PMI. That brought our payment down by $100, but then taxes ate that back up in escrow, so it went back up again.

As far as the hits to your credit report, I think if you do it within 30 days, then it is only counted once, so you can search around a couple different places and as long as it's within 30 days it doesn't ding your credit for multiple hits. Check that with someone smarter than me, but I recall seeing that after we just got the BF set up in a car, and he applied for a loan a couple different times over the course of a couple months, and hit credit got dinged pretty hard for it.

Scott Best calculator I've found for evaluating such differences is here: https://www.hughcalc.org/loancomp.cgi

It's nice in that it considers closing costs, that you'll be saving/investing money you save on interest (and don't send to the loan) and also that there is a tax break for mortgage interest.

dakinemaui I've been using that calculator for years. It's really good for this exact purpose.

Superbone I am surprised it was even worth refinancing with only saving 0.375% interest.  You must have actually added more years when you refinanced to get that kind of savings or have a huge mortgage in the 1 mil range.

ynaber2613 First of all, it was a no-cost refinance. Secondly, yes, I was 4 years into the previous mortgage so I added 4 years. Thirdly, it's a third of a mil (HCOL area and this is one of the less expensive homes). Fourthly, this is not my forever home and I'll be selling in about 5 years +/- so adding years doesn't matter to me. More money in the market does.

Superbone I knew you had all of the bases covered.  I was just curious about such a low interest reduction.  You are probably correct in that investing the payment savings will gain more than the equity gain.  I know in my area home prices have gone up due to the low interest rates.  I would not be surprised later on if they start raising rates that home values will start to go down again.

Superbone Positive or negative? 😛 Supply and demand is obviously inescapable, and demand wanes with higher rates. However, a recovering economy may add pressure to increase demand due to increased job stability as Covid vaccinations come around (someday).

Time will tell, of course, but I suspect values will continue to rise.

dakinemaui It will be interesting. Normally the housing prices go up as the interest rates go down (and vice versa) as people can afford more house with the lower mortgage rates.