Potentially Refinancing Our Mortgage

Potentially Refinancing Our Mortgage

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?

4 thoughts on “Potentially Refinancing Our Mortgage

  1. Hey Jason,

    Sounds like a pretty attractive long-term rate you’re looking at there, and I can see why you’re potentially considering doing everything you can to lock it in. We don’t have such long-term fixed mortgages here in Australia, so hard for me to relate to – the longest you can get is 5 years, and it’s almost never worth it based on where variable interest rates are.

    There’s always a psychological element to some of these big finance decisions, so I just say do what will motivate you the most! As long as you’re either paying down debt, or negotiating a lower interest rate, you can’t go too wrong đŸ™‚

    Cheers,

    Jason

  2. Hi Jason. Thanks for stopping by again. I didn’t realize that fixed rates in Australia only lasted a certain time. At the same time I wonder if they are as volatile or can be as volatile as U.S. markets. I wish the U.S. would adopt Australia’s way of financing higher education.

    It will be interesting to see how the next few months shake out in terms of this mortgage situation. If I can’t do it c’est la vie. If I can, well I just saved about $20,000, which is always nice.

  3. I’m not far off on your thought process, we bought a home at 3.875% on 30 year with PMI that sticks with us for first 5 years regardless(year 3 currently). I have been keeping my eyes open on something similar to what you said. Everything has closing costs or a higher rate, but if indeed true that is a gem in my eyes sir.

  4. I bet you could maybe find a lender PMI that would get you a lower rate, maybe a quarter of a point or so without closing costs. The big thing I want to avoid is closing cost. And the problem is that we just don’t have that 80% LTV quite yet. I can actually get us there maybe by the end of the year, but with rates going up I am not sure that it would be worth it. I just want my money to work more productively.

Comments are closed.

Comments are closed.