A few weeks ago, I asked all of your advice on whether we should refinance our mortgage. At the time, we had just begun thinking about it and were still working out the numbers. As you can probably guess from the title of this article, we went ahead and did it.
So, here’s why. Part of our hesitation was that we plan on being out of our house in less than two years and it would take about two and a half to earn the closing costs back with the saved interest. I think Financial Samurai hit the nail on the head in the comments of that original post when he asked what % we were sure that we would be moving in the next two years. And the truth of the matter is that we hadn’t planned on living in the house longer than 4 or 5 years and here we are going on 6 years. So, yes we plan on moving, but there is a chance that we will end up not moving. More importantly, I think we can earn back those closing costs a lot quicker by using the saved interest money to pay down other, higher interest, debt. If we’re paying off debt at 14%, we’re saving quite a bit each month and that will add up fast.
We did a little bit better on the interest than I had thought. Originally, I had estimated that we’d get about 4.375%, but we actually got in at 4.25%. Every little bit helps. Of course, the downside is that will end up paying a bit more than I had anticipated in closing costs. Which isn’t great, but overall, the math is still very favorable to us. We also reduced our monthly mortgage payment by about $130 or so. That’s a pretty good chunk of change that can go towards our other, higher interest, debt. We’ve got a few more pieces of paperwork to turn in and an official assessment to get before we can truly seal the deal, but all of that shouldn’t have any effect on the turnout. I’m hoping that we can have it all finished up and we can be paying the lower mortgage payment sometime around October or November.
What about you guys? Any of you taking advantage of the low rates to refinance your mortgages?
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Sounds like a very good financial move. Taking advantage of lower interest rates is usually a good stewardship move. My primary home has had the loan refinanced three times over a 20 year period. (In truth, my biggest regret is that I don’t have it totally paid off already) The biggest challenge I have found is to do something positive with the “saved” money. It’s so easy to just absorb it into the general budget instead of putting it toward a directed goal. You are smart to already have the plan of putting the money toward your higher interest debt.
Still underwater here. No refi for us. But good luck to you!
We refinanced a few years ago to 4.625%, and are happy with that rate. It sounds like you got a good rate as well. (And I hear you on the “how long do you plan to live there” question — I’ve lived here since 1997 and originally only intended to live here for 1-2 years.)
At any rate our plan is now to just get the house paid off as quickly as possible.
Financial Samurai says
After 65 grueling days of documentation hunting, I’m finally DONE with two refinances as of Friday! Both are 5 year ARMs at 3.65% and 4% for my rental from a 3yr ARM at 4.65% that was expiring in 3 months, and a 30-yr fixed at 5.375%.
I went to a 5yr from 30yr b/c I plan to pay my rental off in 5-7 yrs.
Congrats on your progress!
mark @ mortgagesbymark.com says
Hi Shane, ask your lender if they can do a slightly higher rate and reduce your costs. It won’t reduce your payment as much, but it might be more cost effective if you’re planning on being in the loan short term.
I would ask your lender to give you a series of rates and closing costs in 1/8 rate increments. Start at the rate you have, and add 1/8 to the rate and have them show you what the closing costs are for that rate. Often there’s a “sweet spot” in the pricing where you get significantly lower costs for a very small bump in rate.
Also, ask them if they will do a “float down” if rates drop by the time you close.
And finally, it never hurts to feign “balking” right before closing to see if you can get the lender to cut some of your fees. They may not agree to do this, but a lender is very motivated to close when they finish a loan, so you might be able to use that motivation to get them to cut some fees.
Good luck! 🙂