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Archive for July, 2012

To refinance or not to refinance

July 14th, 2012 at 07:16 am

Our initial mortgages (yes, 's' as in more than one) was taken when we bought our house in October 2006, and consisted of:
*the main mortgage (80%), a 30-year at 6.375%
*a piggyback, amortized over 30 years, but a payout after 10 (or was it 15?) years. Rate: 8.125%.

In August 2010, we refinanced. The goals were:
(1) lower our payment
(2) lower out rate, and
(3) consolidate both loans into one.
In 2010, both (1) and (2) were reasonable wishes. However, (3) depended on the 80% home-ownership holy grail.
Fortunately for us, the appraiser came up with a value on our house that made us reach the 80%. What a sigh of relieve when I got that phone call!
So we refinanced, another 30-year at 4.75% this time. We are "saving" over $300 a month, but that means we've also added 2 years to the amount of time we'll be paying for this loan.

Now is July 2012, and rates are even lower than what they were 2 years ago. This time, there are 2 goals:
(1) lower our rate
(2) lower the loan period to 20, or, if at all possible, 15 years.
I've made a few calls, and both should be possible. I was quoted 3.625% for a 20-year.

The downside: payment would go up (about $150). But, we're at a place were we can afford that extra payment. So, is it worth it?

Heck yeah!
Ever heard "the more you spend, the more you save"?
It drives me nuts when I hear this in commercials, because it's just stupid to suggest to people that "the more they spend, the more they save". No! The more you spend, the more you spend. Period.
In this case, however, it would mean that over the period of 20 years, we would truly save over $100,000 in interest. I don't know about you, but that's not money I can just turn my nose up at.

But are you planning on staying in the house for 20 years? you're asking (yes, I can hear you).
Maybe not, but here's the kicker:
*30-year at 4.75%:
Principal paid to start is around $300. After almost 2 years, we're paying $350 towards principal
*20-year at 3.625%:
Principal paid to start is $720. That's $720 that's going towards equity and not in the bank's pocket.
Or put in other terms: I'm building equity in my house twice as fast.

Next step: call my mortgage officer to schedule a new appraisal.