I'm not sure if refinancing two times over the course of a loan would qualify me as being a serial refinancer. Perhaps I feel uneasy about it because we refinanced only two years ago. I've heard of serial refinancers who refinance their mortgages almost on an annual basis. Every time I think interest rates have reached their lowest possible point, they seem to find new historic lows. I'm thinking about refinancing my home mortgage, but I am cautious for several reasons. Until I am satisfied to my answer to several lingering questions, I may wait to refinance.
Will I choose the right term?
One of my fears is that I'll choose the wrong term. If I choose a 30-year mortgage, I'll have a lower payment that would make it more affordable if we had to go from being a dual-income family to living on one income. However, we will also pay a higher interest rate. If we choose a 15-year mortgage we would have a lower interest rate, but we might have to refinance again in the future if we can't afford to make the payments.
Will I have to pay PMI?
At this stage of the game, our home is worth $123,000, but we still owe about $102,000. We want to avoid paying PMI or private mortgage insurance so we need our home to be worth 20 percent more than the amount of our new mortgage. Since we don't want to pay cash for closing, we need our equity to be high enough to cover the $2,000 to $3,000 in closing costs. I don't want to waste the money on a property appraiser until I'm sure out home will be appraised at least $130,000.
Will interest rates go lower?
Although I can't imagine mortgage interest rates going any lower, I've been surprised in the past. When we locked in at 4.625 percent, I thought interest rates would never go below that amount. Now I hear that some people can obtain 15-year mortgage loans for 2.6 percent, which is about 2 percent lower than what we currently have.
Will I still pay it off early?
One of the main reasons I'm hesitant to refinance my mortgage is because I'm afraid I will become lazy and stop making extra payments. If I refinance to a 15-year mortgage, I may just pay the minimum amount owed. At that rate, I'll have my mortgage paid off by the time I'm 55 years old. If we refinance to a 30-year mortgage, we'll have it paid off by the time I'm 70, which seems ridiculous.
By keeping our current mortgage, I am motivated to pay an extra $250 a month in order to have it paid off in another 8 years. Sometimes I think it would be better to just keep working my plan to pay off my mortgage early. I'll be keeping a close eye on mortgage interest rates in case they suddenly begin to swing up again. At this point, I'm trying to avoid becoming a serial refinancer.
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