It seems most of us who waited until the last minute to refinance at historically low interest rates have finally signed on the dotted line. According to a recent article by Mortgage News Daily, refinance volume is expected to fall by as much as 26 percent in this New Year.
I'm glad I didn't listen to the naysayers who told me I was foolish to pay down my mortgage when it was at 4.65 percent. Because I paid it down, I'll be able to obtain a more attractive mortgage payment of about $900 a month with my refinance at 2.75 percent.
Now that I have locked in at an interest rate that is lower than I ever expected, I'm a bit at a loss as far as what to do now. What do I do will all the money I'll be saving in finance charges? Do I still try to pay down my mortgage?
Reflecting on my reasons
My reason for paying down my mortgage before was partly in anticipation of refinancing to a lower mortgage rate. I wanted to bring the balance down so that I wouldn't have to pay PMI or private mortgage insurance. I needed my home to be worth 20 percent more than the balance I owed. Also, I wanted a more affordable mortgage payment after my refinance. Lastly, I wanted to save money on finance charges.
Understanding how things have changed
Now, I don't have any of the same concerns. I will be paying only $24,000 in finance charges over the next 15 years even if I just make my monthly mortgage payment without sending any extra money toward the principal. I can compare that to the $130,000 in finance charges I owed when I bought my first home for the same amount 10 years ago. I'm not worried about PMI anymore because I'll only about 30 a month. My PMI payments will drop off within a year since the value of my home has been gradually increasing.
Retiring with no mortgage
My other goal was to be mortgage free by the time I retire. Since I have a 15-year mortgage, I will still have my home paid off by the time I'm 55. I can't even officially retire at age 55, although that's the age when some people move to the age-restricted communities that I personally find extremely unappealing.
Breaking the habit
My biggest challenge will be breaking the habit of sending my mortgage company more money every month. How do I go from spending $1,500 a month on my mortgage to just $900 a month? Because it's hard to break old habits, I may need to start by making $1,200 a month payments. I know naysayers again will say that I could be putting my money to better use by investing in the stock market. However, making an extra $300 payment will mean I can be mortgage free years earlier.
Even after making my $300 payment toward the principal, I'll have an additional $300 a month "surplus." I know that money will come in handy as we save for our next car purchase. Car prices continue to go up even as house prices remain fairly stable. What's shocking to me is the fact that I now have a mortgage interest rate that is lower than any car loan interest rate I've ever had.
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