I felt as though I might be driving the customer representatives at my mortgage company a little batty. For the past few weeks, I called almost every day trying to figure out whether it was in my best financial interest to refinance yet.
After shopping around for the best interest rate and considering all angles, I finally applied with my current mortgage company to refinance to a 15-year fixed rate mortgage at 2.75 percent.
According to an article by the Wall Street Journal, as mortgage rates fall, more people are picking the 15-year option which was once ignored. I decided to lock in my low interest rate of 2.75 percent with no points now since some experts say rates will go up in within the next 12 months. At this time, we have a $102,000 mortgage balance, but that balance should be lower by the time we close on our refinance, which should take only 45 days. For me, there were several advantages to refinancing to a 15-year mortgage compared to a 30-year fixed or even a 5-year adjustable rate mortgage.
Making affordable payments
Some people are afraid to take out a 15-year mortgage because the payments are higher compared to a 30-year mortgage. However, since we purchased our home almost 8 years ago, we have paid down the balance. We can now obtain a 15-year mortgage with payments that are lower than our original payments with a 30-year mortgage. When we first purchased the home, our payments were about $1,200 with a 30-year term. Now we will be paying about $900 a month with our 15-year term. I didn't see a point in choosing the 5-year adjustable since the interest rate is not much lower than the 15-year rate, and yet it comes with the risk of higher payments after the first 5 years.
Saving money on interest
When we first purchased our home, we had a mortgage rate of 5.99 percent. Our mortgage company offered us a free refinance about two years ago, which brought our interest rate down to 4.625 percent. I was hesitant to become a "serial refinancer" by refinancing a second time. However, this is the first time we will have to pay for our refinance. If we roll our closing costs into the loan and take the full 15 years to pay off our mortgage, we will still save $20,000 in interest compared to our current mortgage, which was set to be paid off in another 10 years. However, the real genius comes in still also paying this loan off in 10 years or less, which would save us substantially more in interest.
Receiving surprise incentives
When I first went to refinance, I was taken back by how expensive it is. I had to pay the mortgage company $655 as well as a $385 application fee, $22 for credit reports and an additional $2,500 or more for title fees and other charges. However, once I got the application rolling, I received a $400 employee discount as well as a $500 gift certificate. I could have asked various mortgage companies if they offered special rebates or incentives. Some people say it's not worth it to refinance because of the fees, but I found it wasn't as bad as I had expected. We may only have to pay the equivalent of $2,500 in costs after considering our $500 rebate.
I chose the 15-year rate mortgage because I could get an interest rate of 2.75 percent, which was about 1 percent lower than the 30-year mortgage. With an emergency savings fund, I should be able to make the reasonable payments if we experience a job loss or financial emergency. The $900 payments are certainly no higher than rent payments at the going rate. Although it may take up to three months for my loan to be finalized, I am excited I finally took the leap to refinance my home before interest rates to go up.
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