Our mortgage is up for renewal next month, and I'm trying to decide which mortgage term to go with. You can find a more detail on our financial situation in the thread below, but here are some of the updated happenings over the past few months:
Expected mortgage balance at end of current mortgage - $110k (made $28k lump sum payment last month due to good bonus)
Current bi-weekly payment - $1100 (contributing extra $300 per payment)
Combined annual salaries - $147k (bonus between us this year was $34k, but average several years before that was $25k)
I've currently got 2 mortgage offers on the table:
3-year fixed @ 2.69%
4-year fixed @ 2.84%
Both mortgages allow up to 10% annual lump sum payments and double up payments anytime.
Using an online mortgage amortization calculator, I ran a few scenarios:
Option 1: 4 years @ 2.84%, 4 year amort - $1119 bi-weekly, mortgage paid off at end of term, $6384 interest paid during term
Option 2: 3 years @ 2.69%, 3 year amort - $1468 bi-weekly, mortgage paid off at end of term, $4527 interest paid during term
Option 3: 3 years @ 2.69%, 4 year amort - $1116 bi-weekly, $28612 at balance, $5644 interest paid during term
Here's my assessment of each option. Please correct me if I'm wrong or looking at it incorrectly:
Option 1 - Good safe schedule that more or less keeps us going on the same thing that we've done over the past 5 years. The downside to this option is the higher interest rate. Ability to make lump sum payments is minimized because of the 10% limit (max $11k per year), and the plan is to use our annual bonuses to make these payments.
Option 2 - The extra $350 bi-weekly is do-able, but a stretch. I'd rather not go this route in case something happens. Also, we may have another kid over the next year, and the loss of my wife's income would hurt more under this schedule.
Option 3 - Good compromise solution. Lower interest rate and same payment amount. I can make $11k lump sum payments each year and then pay off whatever balance at the end of the term. The downside is, if for whatever reason we can't make lump sum payments and need another mortgage term after this one, rates may be higher. But with $28k to go, interest shouldn't be too bad even if rates rise.
Any feedback would be appreciated.