I fully admit that I think about personal finance a lot. I spend probably about an hour or so a day or more thinking about ways to pay off my debts faster, pay off our house faster, extra jobs that I could do to earn extra money to pay off debt, etc, etc. My newest idea has been exploring the idea of refinancing our mortgage.
Before I explore this idea further here is a bit of background on our mortgage. We bought the house with 5% down, 15 year mortgage, and an interest rate is 3.75%. In order to avoid Private Mortgage Insurance, because of my job, I was eligible for a program called Loan Provider Mortgage Insurance. So instead of paying normal PMI, which is a fee that you have to pay on top of your mortgage until your mortgage to home value is at 80%. In other words, if our mortgage is $160,000 the value of the home has to be $200,000 to avoid PMI. We were able to roll the PMI into our interest rate. So we didn’t really avoid PMI it was just baked into the interest rate.
Now on the surface this might seem like a crazy idea because we just bought the house 8 months ago and we probably don’t have an 80% loan to home value (LTV) in order to reduce the interest rate on our home. A friend of mine asked me why I wanted to refinance and just pay a bit extra toward our principle, which is a great idea. Well, I am already paying a little extra per month (only about $100 or so). However, this will go down when they redo our escrow payments because of the increase in our real estate taxes our escrow payments are going to go up and that will reduce the amount of principle I am paying down.
This might also be a crazy idea because when you refinance you have to need to pay potentially thousands of dollars in closing costs, which we might be able to get, but would it be worth paying all that money just to lower the interest rate?
Normally, the answer would be no. However, I found a program at a local credit union where they were offering a loan at 2.875%, 144 month (12 years), and no closing costs. The only hiccup is that they require an 80% loan to home value in order to be eligible for the program. And I am not sure when we will be eligible for the program. It might be at the end of the year when our home loan balance has gone down and our home value has probably grown just a bit.
I guess what appeals to me the most is that our interest rate would be lower, we wouldn’t have to pay closing costs, and we would shave almost two years off our loan time, which will get us out of mortgage debt a lot sooner. We would save almost $20,000 in interest and principle if we could somehow get this done.
Unfortunately, I am not sure this could even happen. It might all be a pipe dream. Interest rates are going up, this program’s interest rates could reset and it it didn’t it really wouldn’t be worth the hassle of an appraisal, filling out new paperwork, and the like if we didn’t save this much money. Despite this, I keep thinking of ways to make this work. If I pay the principle down faster I can maybe get our house to the 80% threshold, if I delay other debt payments I could also help this out. If I worked another job, etc, etc, etc.
Anyone have any experience with refinancing their mortgage? Is this all a pipe dream? Maybe I just need to keep focusing on paying down debt and not worry about the mortgage at this time. Thoughts?