Eight years ago we thought we were done with refinancing forever after we moved from a 30 year to a 15 year mortgage at a then-competitive rate. As the months passed by and the loan balance started to fall faster and faster, I looked forward to the days when most of one bi-weekly paycheck per month would not be reserved for the mortgage payment.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
Over half-way through the 15 years, I was still committed to staying the course to pay off that loan in 2019. But the plan has changed. After listening to hundreds of radio ads over the last year or so about “historically low” interest rates, I decided I should at least look into the options. I tend to be skeptical about advertising claims related to anything financial, so I was surprised when it turned out the lenders in those ads were not kidding. A lot of internet research and a little pocket calculator time quickly showed me that we would actually LOSE money by paying off our 2004 loan over the next 6+ years.
Instead, by locking in a new rate that is less than half of our 2004 rate,we will save money over the long haul by re-starting the 15 year clock, even if we let the new loan run its full course through 2027. If we pay down the principal to shorten the 15 years, so much the better. Either way, we free up almost 1/3 of our old mortgage payment each month.
The highlights:
- After looking into a variety of lenders, we found a great rate at our local credit union, my primary bank since I joined during my firstyear teaching.
- Despite the fact that my wife is now self-employed, working from home, the application process was simpler and smoother than any of our previous mortgage experiences.
- After just over 6 weeks, we were able to go to settlement–except we did not ‘go’ anywhere.
- Our new lender recommended a title company that came to us. No bank or lawyer’s office–we settled at our own kitchen table.
A single snag:
- Because of Hurricane Sandy, which hit after our original appraisal in October, we had to pay a little extra for a follow-up ‘exterior-only’ inspection after the storm. We probably could have talked them out of the $100 fee, but–at the risk of sounding naive–it seemed petty in light of what the hurricane cost so many other families, and life is too short to battle over everything.
How does this all fit into a “Dad Blog?” Now that we have refinanced, we have more options. Having a lower monthly payment frees up a notable amount of cash for family activities and school expenses–soon to include college tuition, room & board, textbooks….and the list goes on. And over the long run we will be able to save thousands of dollars in interest compared to the path we were on just 2 months ago.
I have NO qualfications as a financial adviser, but I would encourage anyone to do a little research while the rates are still so low. What you find may be…unexpected.
Note: DadKnowsBetter has not received any compensation of any kind, including (unfortunately) waiver of the post-hurricane home inspection, related to writing this post.
