Housing market up - Don't buy, but refinance from a 30 year to 15 year mortgage!

The headlines continue to trickle in about the strength of the housing market with April and May figures continuing to be off the charts in terms of YoY growth. After writing about how I don't think it is too smart to buy property at the moment (link here: https://thrivingwithinterest.blogspot.com/2021/05/is-it-smart-to-buy-property-in-2021-i.html) I would say that for those who have a mortgage it is a great time to refinance from a 30 year mortgage to a 15 year loan. Let's crunch the numbers.

Most people who follow these sorts of things know that the Fed cut interest rates close to 0 in the immediate aftermath of the pandemic and forced shutdowns last year. A number of my friends took advantage and refinanced their homes at that point in time. It was a great opportunity as 30 year mortgage rates reached all time lows. Since late 2020/early 2021 those rates have ticked up a bit. Interestingly the same thing has not occurred with 15 year rates. They did reach a an all time low in late 2020 and had a slight rise in early 2021. However since then they have resumed a downward trend and are close to all time lows. A picture tells 1,000 words as they say. So here is the chart:

blue is 30 year rates, green is 15

What does this mean in terms of actual dollars and cents. I have used a mortgage calculator provided by Zillow, and confirmed the numbers with my mortgage broker. Here is what it means using the following assumptions:

• A mortgage amount of $1,000,000 (which may seem high in certain parts of the county, low in LA/NY and other major metropolitan areas, not to mention it is easy to apply a percentage to these numbers based on the actual mortgage amount you are looking to refinance);
• Previous refinancing was a 30 year mortgage done in mid 2020 at a 3% rate;
• Refinance to a 15 year mortgage at a 2.25% rate.

The bottom line results are this. With a 30% increase in payments, you will chop 13-15 years off of your loan tenure and eliminate over close to 60% of the total interest you end up paying over the course of your mortgage. From a dollar amount, you will save $278,000. Again, if you don't have a $1,000,000 mortgage you can apply the percentage of your existing amount to this $278,000 figure. Pretty phenomenal stuff. 

Some may say that it is unrealistic that a family can afford to pay 30% more than previously, however the reality is that most people's finances are at the peak levels, flush with cash, retirement plans at maximum amounts, and alternative investments also worth the most they ever have. So by tightening the belt just a little bit, this should be feasible.

Has anyone refinanced recently? What do you think? I say Just Do It!