Most people refinance their home mortgages to secure a lower interest rate. I'm considering refinancing at a higher interest rate so that I can lower my mortgage payments. We currently have a 15-year mortgage, but refinancing to a 30-year mortgage would lower our mortgage payment from about $900 to $600 a month. Although we will pay an extra $86,275 by refinancing, it's money we would have spent anyway if we had chosen a 30-year mortgage when we last refinanced. I recently read an article by Fox Business about the stupid mistakes people make when they refinance. I made the mistake of refinancing to a shorter loan term, which meant a larger mortgage payment would be due each month. If my husband and I had to live on one income, we would be happier with a $600 a month mortgage.
Switching while rates are low
From a historical perspective mortgage, mortgage rates are still low. We can obtain a 30-year mortgage for about 4.35 percent. Although it's higher than the 2.75 percent mortgage rate we currently have, it's not as high as I've paid in the past. When I purchased my first home before the housing bubble, I paid about 7 percent for my mortgage loan.
Paying off our mortgage early
I used to have a dream of paying off my mortgage early, which I can still accomplish. However, locking down a lower mortgage payment of $600 a month or less will give us peace of mind as we grow older. We will be 70 years old when our mortgage is paid off, which is the years we intend to retire. Having a mortgage to pay will motivate my husband and I to keep working until we are 70 years old. At the same time, we are always free to pay off our mortgage early, which will reduce the amount of interest we pay.
Avoiding PMI payments
We will be able to avoid paying private mortgage insurance or PMI because we have more than 20 percent equity in our home. Homes similar to our home are currently being appraised for about $175,000, but we only owe about $95,000. According to the Fox article, one mistake homeowners make is being over-optimistic and even delusional about their home value.
Paying closing fees with cash
If we paid the $6,000 refinance closing fees with cash, we could lower our mortgage payment by about $25 a month. Although we plan to pay the closing fees with cash, we are going to skip the mortgage payment during escrow, which is allowed. Skipping the mortgage payment isn't going to affect our monthly mortgage payment, but rolling the closing costs into the loan will increase our monthly payment.
People refinance their homes for different reasons. At one point, our primary goal was to reduce our interest rate to the lowest rate in history. However, as we grow older we want the peace of mind knowing we only have to make a payment of about $600 a month including property taxes and insurance. As long as our mortgage is paid off by the time we collect our Social Security benefits, I'll be happy. Of course, in another 30 years the Social Security benefits might not even cover our property taxes.
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