It seems as though my husband and I won’t be refinancing after all. I considered shrinking our mortgage from 15 to 10 years, but decided that the cash flow issues were not worth the additional interest savings.
I took a gander at mortgage rates today and realized that the rate on a 10 year mortgage is only 3.25% at our local credit union. My husband and I currently hold a 15 year mortgage at 4.5% and I am unbelievably tempted to refinance our property. If I decide to move forward with this decision it will be the fourth time we’ve refinanced in ten years!
We last refinanced two years ago, so we have roughly 13 years remaining on our current mortgage. I refuse to refinance for another 15 years, because I don’t want to push our payoff date back any longer. In essence, we shrink this mortgage down to 10 years or we simply keep it just the way it is.
There are pros and cons to refinancing again. On the plus side, refinancing would save us $60,000 in interest over the next 10 years. We’d also pay off the mortgage three years faster, which means we’d be mortgage free on our primary home by the time I turn 45.
On the negative side we’d have to go through the hassle of refinancing our property yet again. The paperwork alone can make this a total nightmare. We’d also have to pay upfront closing costs, which totaled over $6,000 last time.
Lastly and most importantly our mortgage payment would increase by nearly $500 a month, which is a big chunk of change considering I’m not sure how soon I want to go back to work after the baby is born. I worry about adding an even bigger mortgage payment to our budget when I’m not sure if I’ll bring in any income.
Rather than refinancing we could include additional principal in our monthly mortgage payment. This would save us $20,000 or so over the life of the loan, rather than $60,000. However, it would provide more flexibility if I decide not to return to work for awhile. If we have money to throw at the mortgage we could do that. If time passes and we don’t have the money available we don’t have to worry about not meeting our financial obligation.
A third alternative could be to refinance the loan while simultaneously paying off a chunk of principal using a portion of my severance payment. Shrinking the total loan amount would decrease our monthly payments. The goal would be to add only $100 or $200 a month to our payments rather than a whopping $500.
Of course, the downside to this approach is that we’ll have less money in our bank account to fall back on if I decide to stay out of the workforce longer than expected. We’ll also lose out on any interest or growth this money could have earned.
At the end of the day I’m not certain how to proceed. After weighing the pros and cons it seems the safest approach is to stick with the mortgage we currently possess. On the other hand with mortgage rates this low it’s hard to pass up $60,000 in interest savings!
As I mentioned last week my husband and I decided to take the plunge and refinance our home. We can’t be certain where rates will ultimately land, but between the low interest rate and the low closing costs we figured we might as well jump in. As part of the loan application process the lender pulled our credit and disclosed our FICO scores.
In general FICO scores range between 300 and 850.
Ratings are as follows:
~ Excellent: Over 750
~ Very Good: 720 or more
~ Acceptable: 660 to 720
~ Uncertain: 620 to 660
~ Risky: less than 620
My scores were excellent!:
As I mentioned yesterday my husband and I decided to refinance our home. We considered waiting to see if rates would continue falling, but ultimately decided this was the right time for us. Of course it never hurts to find financial experts who agree with our decision. So I poked around the Internet and found the Rate Trend Index on bankrate.com. If you are considering refinancing your home anytime in the near future you may want to subscribe to the Rate Trend Index alerts.
For the week of January 24 – 30 the majority of polled experts believe mortgage rates will rise over the next 35 to 45 days. About one quarter think rates will fall and the rest believe rates will remain relatively unchanged.
Here are a few of the expert’s comments:
- Rates have had an unbelievable run as of late. Anytime we have approached these levels in the past four years, we have been jerked higher in coming weeks, and I expect nothing different. If you haven’t applied for a loan and/or locked your rate, do so now.
Jim Sahnger, mortgage consultant, Palm Beach Financial Network, Stuart, Fla.
- With the intent of stimulating the economy, the Fed has cut rates, and will most likely do it again. This will entice more international investors, boost consumer confidence, leading to higher rates.
Steven M. Levitt, vice president of mortgage lending, Guaranteed Rate, Chicago
- Mortgage rates have been in free fall. But how much longer can it continue? Bonds are overbought and mortgage rates could bounce back quickly.
Greg McBride, CFA, senior financial analyst, Bankrate.com
Of course there are a few that think rates will continue to fall:
- The more the public hears about recession, the more likely it is to happen. The absence of inflation pushes mortgage rates down.
Dan Green, mortgage planner, Mobium Mortgage, Chicago
Since we have no idea what rates the future will bring my husband and I decided to go ahead and lock in our loan. I think it’s wise to search for cheap mortgage deals right away. After all, 30 and 15 year fixed mortgage rates are close to reaching historical lows.