Refinancing made easy: Our story
Posted
Feb 09 2009, 08:21 AM
by
Karen Datko
Rating:
This post comes from J.D. Roth at partner blog Get Rich Slowly.
I recently had lunch with my friend Winston. We talked about our families, our finances, and our plans for the future. Winston mentioned that, at my prompting, he and his wife were refinancing their home. "The local credit union was able to give us a deal," he said. "We got a 15-year loan at 4.625% for just one-third of a point."
"I'm embarrassed to admit that I haven't done anything about my mortgage," I said over my plate of General Tso's chicken. "I wrote that article, and meant to refinance, but then I got sidetracked. I should do this tomorrow."
I paused for a moment and then added, "Actually, I guess I have done something. I filled out the information for Lending Tree, but I've decided not to have anything to do with them. They send me e-mail every day. I hate that. I finally wrote them a nasty note telling them to go away."
Winston laughed. "That's why we went with the credit union. We were going to use another guy in town who had a slightly better rate, but he was a jerk. He wouldn't leave us alone. We used the credit union instead."
Heeding my own advice
The next morning, I called two places: my credit union, and the company that currently carries our mortgage. The credit union never got back to me, and I had to wait on hold for about half an hour with our mortgage company, but eventually I did get to speak to somebody. "I apologize for the delay," he said. "We're swamped."
Because we were dealing with our existing mortgage company, and because my wife and I have made huge strides in our finances during the five years since we bought our house, qualifying for a refinance was easy. "This is going to be a breeze," the mortgage guy told me after he saw our credit scores. "Other than your mortgage, you don't have any debt."
Our current mortgage balance is $207,000 at 6.25% with 25 years remaining on the loan. Our monthly payment (including taxes and insurance) is $1,671, but we pay $2,000 every month in an effort to eliminate the debt sooner.
The mortgage guy quoted me two options:
- A 30-year fixed rate at 4.96% with no points and closing costs of $2,556. Our monthly payment (including taxes and insurance) would be $1,409.
- A 15-year fixed rate of 4.625% with no points and closing costs of $2,556. Our monthly payment (including taxes and insurance) would be $1,909.
I completed the refinance application over the phone. The next morning, UPS delivered the documents for us to sign.
I set aside time to read through everything carefully. I believe it's vital to read -- and understand -- your mortgage paperwork before signing. I called back with several questions, gathered the required documentation, and sent the forms back to Maryland.
Assuming no hitches, we should have a shiny new lower mortgage rate in about a month.
A difficult decision
To this point, refinancing has been simple. The most difficult part of the process was choosing which term we want: 15 years or 30 years. It's true that we've been paying $2,000 per month toward the mortgage, so we knew that we could manage the $1,909 payments for the shorter term. On the other hand, dropping our required payment to $1,409 would give us a great deal of flexibility should something go wrong.
My wife, the Excel master, created a financial spreadsheet to play with various repayment plans: 
Ultimately, we chose the 30-year mortgage. Since we hope to continue accelerating this loan, our final payment is projected to be around 2023, only 14 years away. We made extra sure that this new mortgage has no penalty for early payoff. We could have chosen a 15-year loan, but we both agreed that, especially in this economy, we like the idea of having the flexibility to pay less than we plan.
Footnote: There's talk in Congress of driving mortgage rates down to 4%. If you think this is likely to happen, then it makes sense to wait before refinancing. My wife and I decided we'd rather take advantage of a good rate now than wait for a great rate in the murky future. Do what works for you.
Related reading at Get Rich Slowly:
When does it make sense to refinance a mortgage?
Mortgage prepayment made easy: Own your home in half the time
Is it better to invest or to prepay a mortgage?
