“Refinance” always seemed like one of those big, fancy words that was reserved for our parents. Being first time homeowners and relatively green when it comes to investing (three years into our first mortgage), we initially ignored all the recent hype about low rates. But based on some advice from my dad, our loan officer, and blogs like One Project Closer, we decided it was actually a great opportunity to learn more and see if refinancing was right for us. After all, who couldn’t use a lower mortgage payment these days?
First we had to figure out if we were good candidates for a refinance. On first glance, it sure didn’t seem like it. We’re young (which statistically means we’re more likely to change residences soon), we’ve only lived in our home for 3 years (which usually means the principal balance isn’t much lower than it was at the start of the loan) and we already started with a pretty low rate (we locked in at a 5.75% back in ’06).
But we learned that the assumptions above don’t really apply after a closer look: 1. We actually plan to live here at least another 5+ years (ideally, forever) so the idea that we might move before we get our money’s worth from the refinance isn’t accurate. 2. Some strategic overpayments to our principal balance over the last few years had already cut it down to 73% of the original loan amount (our loan officer was thrilled about this so we felt great for adding an extra payment here and there). 3. Our good credit (and good timing) made us eligible for a rate of 4.35% – the second lowest our closing attorney had seen (yes, we did a little victory dance when he said that).
All that created a near perfect storm for us – we’d get a much lower rate on a much lower principal. Our loan officer helped us calculate that we’d be able to lower our monthly payments by $430, meaning we’d recoup our closing costs within the year. Score! Where do we sign?
There was one hitch, though. We absolutely hate having a mortgage (it’s the only debt we have). And refinancing meant starting our 15-year loan back at year zero (we want to own our house outright by the time we’re 40). Our previous mortgage overpayments had put us only 10.5 years away from completely paying off the entire house, and the idea of setting ourselves back 4.5 years was a little uncomfortable for us.
Here’s our solution: as long as we’re financially able, we’ve planned to continue paying the same monthly payment- sending the extra $430 directly to our principal balance each and every billing period. If all goes as planned, rough amortization schedules predict that we’ll actually shorten our new loan to about 9 years and, in the process, save ourselves up to $32,000 in interest. Not too shabby for an hour of signing about a million pieces of paper.
Sure, it hurts a little bit to have forked over close to $4000 in savings for the closing costs, but with our long term goal in sight, we’re looking forward to putting that extra $28,000 to good use in 2018 (that’s the $32,000 we’re saving minus the 4K refinancing fee). Plus if times get tight, we always have the short term security of lowering our monthly bill by $430 at a moment’s notice since it’s an optional overpayment.
But enough about our money matters- have any of you refinanced recently? Are you considering taking the plunge? Any other 15 year mortgage lovers out there (we know we’re a rare breed)? We’d love to hear your thoughts, tips or experiences.
Images courtesy of Wordle, featuring text from recent mortgage and refinance related news articles. Click on each image to read the full article.
we’re in the process right now of going from a 30 yr to a 20 yr. our payments will actually increase a small amount, but our interest is way down and we will save close to 100K!! pretty sweet!
oh- and we were only a year into our mortgage and also plan on staying in our home forever, so there was no question when the rates lowered!
We just closed on our refi last week, and our payments are about $300 lower! It was quite an experience though… the mortgage companies were hesitant to value homes and we had to have multiple appraisals and reviews to get everyone to agree. I’m so glad it’s done!
We are going to use the extra to build up our saving account with our extra $300 a month, and once we reach that goal, we’ll start putting the extra into the house :-)
We just emailed our mortgage guy yesterday to start the process to find out if it would be in our best interest to refinance right now!!
You guys should be uber-proud! Way to go! We love the 15 yr mortgage – unfortunately we didn’t know the perks till too late so we just try to throw in the next months principal amount with our payment. It’s our own version of refinancing…except with a bit more cushion :)
I’m set to refinance the beginning of April – shaving about $400 off my monthly payments. Plus, I just got a check in the mail stating that I overpaid my mortgage insurance by $950 last year. Whoo-Hoo!!!
MaryB in Richmond says
I had a very quick and easy experience with Capcenter.com here in Richmond (whom I can totally recommend!). My mortgage, post-divorce, was only 8 months old so although I hated the thought of starting over (it, too, is a 15 year note) I thought it was worth it. But your suggestion of paying the same amount for this lower interest is really genius — I refied not so much for the lower payment but for the lower rate, and … oh, man, I would love to be mortgage free that much sooner!
Y’all never cease to amaze me. THANK YOU!
MaryB in Richmond says
Also, capcenter.com is a no-closing-cost company, so you can choose to pay some points for a lower rate, or choose not to (varies by day, of course). I couldn’t have afforded to pay anything for closing so they were a great choice for me.
We have a 7/1 ARM on our small 2BR co-op in Manhattan, which we’ve been in for almost 2 yrs. We are planning to stay at least another 5 yrs but wanted the flexibility to stay longer if needed, without the stress of our ~6% rate going up 3 percentage points a year. Turns out we can get a 30 yr fixed mortgage at 5% and change… so we locked in earlier this week and are just waiting for our appraisal to finalize. Yay!
Congrats on the nice chunk of savings!
Everything is so complicated in Germany. Well part of it is the fact that I don’t know German well enough to sign papers. Everything has to be translated by an official document translator and read out loud by a certified reader. You can’t just read the stuff yourself. Then you need stamps and certificates from all these different offices that are open a couple hours a week.
Oh to be in the US again with those lovely rates. Enjoy that interest savings.
I share your 15 year mortgage love. Sure it means higher payments now, but paying down principal sooner makes me feel like I have more financial security. I have enough principal paid off to be able to sell tomorrow and not have to pay out of pocket. That’s a great feeling.
Our rates aren’t terrible to begin with since we just purchased recently. Still, I think that we could probably get a lower rate–I’m just not sure it’s worth our savings taking such a big hit right now!
I wish we had a 15-year mortgage! We just bought our second house and got a great rate on a 30-year mortgage. We’re only 25 and living in our dream home, so needless to say, we are very happy with our situation and can’t complain too much. It must be so thrilling to know that you will own your house outright in just a few years!
We are hoping to improve our rate b/c last time we were bumped up a point at the end of closing b/c my hubby is self employed.
Funny – you just went thru the exact same process as we did. Same pros and cons and everything. I could have written the same post (except you did a much better job of explaining than I would have done!)
We refinanced our home in Hampton (we’re renting it out to a family) and dropped our payment by over $400/month. It was so awesome!
Thanks for sharing this info–it’s always nice to see something as convoluted as home refinancing put into terms anyone can understand!
Great idea…would love to refinance. Any tips on where to begin to look for rates/who to contact? The company that helped us with our original mortgage isn’t around to help us. Thanks!
ashley morgan says
Wow…that’s fantastic! My husband and I are looking to move (upgrade!) within the next three years, and rent our current house. Would that make us candidates for a refi or no, since we wouldn’t be selling?
Niki R says
We refi’d in January which got us out of a horrible mortgage situation that we were in after a corporate relo 3 years ago. The new mortgage saves us $170 after PMI. Our rate went from 6 and 9.25% (we had an 80/20 originally) down to 4.875%. The rates haven’t gotten lower than that in NY (unfortunately for us!)
Woohoo! Nice going! We refinanced in January, and save about $180/month. With the extra dough, we started a vacation fund… maybe not as practical as your overpayment, but travel is something we felt like we were always sacrificing in order to be super frugal.
Wendy D. says
We bought a house here in Cincinnati for only $15K! It wasn’t a tear down believe it or not. It’s a small fixer upper which we have put about $20K into. My husband and I are forgoing our “dream home” for our dream of traveling and living “free”. We are debt free! IT CAN BE DONE!
My dad paid off our 30 year mortgage in 19 years by paying a lot more than necessary every month…it also led to a very stable transition between mortgage payments and college.
Can you please, please, please tell me who you used to process your refinancing? We have a similar situation to yours with a currently low rate, but of course want the whole cake and want to get a rate under 5%. We are with B of A who told us the lowest they could give us is 5.25%. I know the locations differ and that could make all the difference, but if you have a fabulous bank or association, I’d LOVE to know!!!!
Hey Jaimee, Morgan & Molly,
I’ve recommended to my coworkers that they talk to the bank that does their existing loan as well as an independent loan broker/officer. We found that the independent firm was able to beat our bank’s offering, just as Morgan mentioned. The company we used is local and – this sounds so official – our closing attorney advised us not to divulge that detail on our blog. But there are plenty of places out there these days that provide this type of service, so asking some local friends or family (or even a simple web search) should uncover some good places to start.
And Ashley, I’m no expert, but it sounds like you’re a good candidate for a refinance. We were advised that the general rule is that you want to own the house for at least 3 – 4 years after a refi to recoup your costs, but obviously that’s not a hard and fast rule. I believe the terms of your loan can change if the home is no longer your primary residence, so it’s probably best to get the advice of a professional. I found our loan officer was more than willing to work through different scenarios with us before asking us to commit.
Good luck and keep us posted on what you learn!
We just locked our refi rate at 1.5 lower than we financed at, so we’re thrilled. We’re in a traditional 30 year mortgage but pay it like it’s a 15 – that way we have the flexibility to have smaller payments if something happens to one of our jobs, etc. It works for us because we’re diligent about paying extra every month. We’ll be applying our $300 savings each month to even more principal payments and pimping out our retirement accounts.
Congrats to you guys for being so fiscally responsible! Think of the home improvement projects you could tackle with all the cash freed up from no mortgage payment each month!
We’re closing on our refi in a few weeks, and have decided to put our $300 a month savings into our Master Bathroom Redo Fund. I can’t wait until that sucker is fully funded!
We are currently calling around to lenders to find out if we would be eligible. We went with an 80/20 loan two years ago when we bought our first house. And unfortunately, no one has been able to give me a straight answer as to whether they’ll be able to help us. I’ve also been told that our loan was sold to Fannie Mae (a detail unbenownst to us) and so could be eligible for the new housing act just signed into law last month. Once again, no one could give me exact details and told me I would have to wait 2.5 weeks to hear back from them. I fear I’ll never get that call. I’ve sat on hold already for a long while. If you have any answers you can share (name of the lender/bank you went with) that would be super! I’m trying but I’m not getting anywhere and believe me, we could really use the extra money.
I’m so glad to see so many people being really smart about their mortgages. I own a title company and it is really discouraging to see some of the situations people get into.
My husband and I are getting ready to refi also and are planning on doing a 10 year term. We want to pay off this house and both want to retire at 50!(we are 36 & 39) My kids will all be grown and out of college when I am 52 and he is 55. At least that is the plan for now! Hopefully it all works out.
I can tell you from my own experience, you guys are very wise in your finances. My husband and I, many yeas ago, bought an old house in an up and coming part of Memphis for $18,000. We put down $4,000 and took out a 10 year loan. Lenders were not keen at the time to lend on old houses needing rehab. We renovated over time and paid the house off in 8 years. Since that time we have used the house as collateral to buy a 17 acre farm that we will develop soon. We borrow with caution. We have 3 years left on the farm, which we could pay off with our savings, but we are choosing not to at this time just to hold on to our nest egg. Our house is now valued at $240,000 which we plan to sell once we build on the 17 acres. We never borrow more than we have cash in the bank to pay off. Congratulations on your refinance. Stick to your goal and you will prosper and have many options on how you live your life in the future.
We also just refinanced went from 61/8 down to 41/2% We are also opting to put the extra $270 that we are saving back into the payment to pay it off even earlier. We got in with Guardian Bank in Cincy and they have a flat $350 closing cost, so we couldnt go wrong! Woo Hoo!
FRECKLES CHICK says
YUP!! We have a friend in the biz and so we locked in 4.85% in January. It is soooo super sweet to have a lower mortgage payment.
If you don’t mind my asking, when did you lock in such a low rate?! And I thought ours was good.
Hey Freckles Chick,
We locked in about three weeks ago thanks to our fabulous mortgage guy who offered a 15 day floating guarantee (which basically means if the rate dipped for the next 15 days after we locked in they would honor the lowest rate). We’re so glad we used a “loan officer” because we got a much lower rate than we would have if we worked directly with our existing mortgage company (who could only offer us around a 5.2%)! And 4.85% is nothing to sneeze at. Way to go! We heard that rates were going back up so we panicked and locked in but now it seems like they might be going down again. Good news for anyone who is still looking into it!
Our Creative Life says
I would if it went down to 3.5%. We are at 5.25% now.
I’m with Meredith on this one. It hasn’t been a full year yet since purchase and I’m not sure I want to part with the extra closing cost out of savings right now. A lower rate for practically the life of the loan would be great, but I’m not sure if I/we will be staying here. I did look into it and the savings would only be $80-$100 a month, taking about two years to pay back the closing costs.
The good thing is that I have only the mortgage and some lingering student loans. Otherwise debt free.
We just refinanced our new home after 3 years and dropped our rate 1.125%. We however are in a 30 yr loan. It’s quite interesting to me that some people are so eager to pay off their mortgage so quickly. The tax deductions on the interest along with the low interest rate make it the safest debt you own. Seems you could do much better with the extra money in other investment opportunities.
We know we’re definitely a rare breed who just hates debt and can’t get rid of it fast enough (even if it’s the safest debt we can own, it’s still a payment with interest every month)! We actually had one of those “dont-pay-any-interest-for-six-month” credit card balances with Home Depot when we completely gutted our kitchen, and we caved after four months and paid it all off. Even though we had two more months left to defer it interest free it just felt like it was hanging over us, and cutting that check and dropping it in the mail made us giddy. Who gets giddy to spend $14K? We did! Just to have officially “paid off” the kitchen. I know, we’re weird.
We know paying down the mortgage sooner rather than later isn’t the best way to free up a lot of cash to invest and play the market, but our loan officer actually recently told us that by bucking the trend to aggressively invest (aka: being money wusses) we inadvertently put our money in the safest possible place (into our home, which increased almost 30K in value over the past three years according to our latest appraisal). We were even told by the loan guy that we were “working our money” better than he was (he lost a good amount of money in the stock market over the last year)! All because we’re too sissy to invest and we wanna get rid of our mortgage!
We just looked into refinancing. Our monthly payments could drop way down. But we are hoping to move within the next few years and aren’t sure it would be the best investment. But if we could make it back in one year it would probably be worth it to do so.
We are on a 30-year mortgage. This gives us the ‘safety net’ that a 15-year mortgage wouldn’t allow. But – we put extra towards the principal every month and try to put big lump sums down about twice a year. We have only owned our home for about a year and a half but, according to our ammortization table, have only 23 years left. Hopefully, we will continue to knock down that number rapidly. And if one of us were to lose our job we would still be okay.
I like to see other young people doing this the smart way instead of getting a big house they can barely afford on a 30-year loan with no downpayment. Not smart.
My husband and I closed on our first house TODAY!!!!! We own a home! (It made me a little giddy thinking about it today.) So, no, we sure can’t refinance right now :=) It was great to read everyone’s comments though and encouraging to see that there are still financially responsible people in the USA. The news can be such a downer. While we got a traditional 30-year mortgage, we plan on paying it off early – but can’t make extra payments right away. I’m staying home with our daughter now, but when she’s in school and I go back to work, extra payment time!
Oh, and our mortage is our only debt too.
You guys are lucky real estate prices are low enough you can do a 15 year. No one in Seattle is doing a 15 year on their first house, not many people can afford a 15 year loan on a $350K small starter house.
We have a 30 year, fixed rate mortgage. We plan to rent the house out in a few years, we will just about be able to cover the payment with rent.
Cecily T says
We just refinanced recently. We were pretty much in the same boat with being here for just 2.5 years, but this is our second home. We have a 30 year mortgage, mostly because I’m home with a toddler right now, but we’ll be able to knock out the principle faster if and when I go back to work. In the meantime, it’s a cushion while we save for college and make improvements to the house. We are saving about $150 a month on our mortgage after the refinance.
We have not been in our house that long, but I was planning on looking into refi when we have been in the house a year. We also went with a 30 year mortgage but are paying the amount we would pay if it was a 15 year to try to chip away at that principal. We chose that for “cushion” as some others have mentioned. I sure hope the refi works out and we can reduce our payment and put the rest towards principal!
Ally S says
This is probably too personal a question – but to people who are re-financing, are you planning on having families soon?
Because even though it would be nice to debt-free by the age of 40, we’re thinking of prioritising the chunk of savings over a lower mortgage, as the baby conversations are cropping up more and more often.
Was this a factor in any of your decisions?
bridget b. says
we are thinking of starting a family this year and are currently refinancing. the advantage with the refi is that it will lock in and lower our interest rate (which is currently adjustable at about 7%). It will also lower our mortgage payment by several hundred dollars a month. We’ve owned the house for 5 years, but since we’re probably not planning to stay there forever, we’d rather have the extra cash now to pay down school loans, build up our savings and for any little additions to the family.
We’re refi’ing our loan this month actually. We’re only 9 months into our loan so we were not worried about the setback in payoff. We’re in a 30-yr loan, the way real estate is in CA there is no way we’d be able to afford a 15-yr loan. It’s easy and very very inexpensive (FHA streamline refi, yay!) and we’ll save about $300/mo, which will be heaven with the baby coming in about 6 weeks.
I’ve been waiting for this post ever since you mentioned refinancing on Twitter. One of the (many!) reasons I read your blog is that I’m like-minded when it comes to money. My husband and I have a 35 year old rancher on a 15 year mortgage. We live below our means and have no debt except the house, which is 1/3 paid off, and one car. We have a couple of friends who have also recently completed refinancing. Unfortunately (or fortunately?), we locked in at 4.5% originally, so there isn’t much we can do to lower our payment right now.
We were also paying more toward the principal, but decided to discontinue that and put extra money toward our retirement accounts since that money has much more potential to grow over the years. Also, the retirement money will actually be “cashed in” at some point, unlike the money spent on a house. Anyway, that’s how I have it worked out in my head! lol
Fred @ One Project Closer says
I just saw this — sorry I missed it!
So glad your refinance went well … We seem to share similar financial goals. Congrats on that, and on the outstanding success of your little piece of online real estate.
Thanks for the mention, too!
Woo hoo to the refinancing! My fiance and I are only 14 days away from closing on our first home and we scored an interest rate of 4.625%. So exciting! Since we put down 20% for the downpayment we don’t have to pay the mortgage insurance on top of the home owner’s insurance—that’ll save a ton! You guys are so inspiring :) Now, if I could just talk my guy into a few pieces of white furniture instead of all wood ;) HAHA I love wood too but a little white would be nice!
I just found your site a few weeks ago (this is my first comment!) and have been going back through your blog from the very beginning. I came across this post and to learn about your money habits made me smile! I am so proud of you guys and respect you even more. It is possible to live within your means while still having a home that is comfortable and reflects your own style. I know you will love your house even more when it gets paid off.
No debt is the safest debt!
Aw thanks Sarah! We’re blushing over here. We definitely sleep better at night knowing that we’re clinging to the money advice that our thrifty dads passed along to us!
I wish we had a 15 year mortgage! We live in san Diego where houses are $uper Expen$ive! 30 years is the best we can do, and even that is a strech. We’ve had to look into a refi once or twice, but never pulled the trigger. Thanks for all the tips, its something every homeowner should know!
Autumn @ Fleener House says
Interesting to know. I was wondering how the whole refinancing things work, and much more interesting to know that you guys are on the fast-track to being debt free!
This is hands-down my fav post from TYH, I mean YHL :)
It’s so informative, looks great and is easy to read thanks to the word art, plus it’s well-written and makes a complicated subject much less scary.
Thank you so much for sharing this experience with us!