Friday, September 7, 2012

The Great Mortgage Conundrum

Whew, I haven't been so happy to see Friday....aww heck, scratch that, since last Friday.  Still, a welcome sight, as always.  I know I've said this one before (doesn't all material become somewhat recycled after a time?) but the short weeks really...don't seem short.  That's  not saying that I'm advocating for a 5 day week.
Clearly, I'm still on drugs!  Bee update:  Still red and splotchy, swelling down.  I'm really getting tired of my raspberry (beret) arm, but I suppose there are worse things, so I'll shut it and move on. 
Friday = weekend.  = happy hour (well, for teh normalz).  = payday.  The hubs gets paid weekly and I get paid bi monthly, so every Friday I make a habit of checking our joint saving/checking account to make sure we have enough pennies to pay the bills and that the hubs hasn't charged any new bike parts or tickets to Mexico to the joint credit card (kidding, hun, JUST KIDDING.  I bought those tickets :-P).  As I was scanning our account today, I saw a sidebar email from our contact at our bank regarding refinancing. Hmmm.  I've looked at this a few times, but given the fact that our pennies are not as plentiful lately and interest rates are pretty low, I decided to play a bit.

Right now we have a 30 year mortgage on our home.  We've owned for 3 years, but have made extra principal payments each month so that instead of our mortgage going until 2039, the house will be paid off in 2030 (go us!) Our interest rate is 5.125%  Over the life of the loan, we will pay  over $150,000k in interest.  Wow. That's whole nother 'effin HOUSE!! 
However, since we've paid an extra amount of principal each month, we'll cut off a nice hunk of interest.  If we pay an extra $300 per month on our mortgage for the life of the loan, we'll own our home in a cool 14 years instead of 30.  With a heck of a lot less interest spent ($80,000 less, to be exact)  Sweet.

But....if we refinance, we can go with a 15 year mortgage.  With a 3% interest rate.  If we ONLY pay the minimum, it will be $40 less per month for our mortgage.  And, assuming we pay the minimum for both this scenario and our current scenario, over the life of the loan, it will save us $28,000.  The catch?  It'll cost $6,000 in closing costs to re-finance (such a friggin rip off, but at least $2,200 goes into escrow, so really only $3,800 is a "waste".  Hmm.  Take it one step further.  If we forgo the extra $300 above (which may happen due to life) and pay the extra $40 a month that we are "saving" by refinancing, then we will have the loan paid off in 13 years.  Saving $300 each month for the next 11 years (almost $40,000) but extending it by an extra two years ($18,000).  Therefore, a net saving of $22,000 with the mortgage, minus the closing costs = $16,000.
Wow.  That's a new car.
Or....30 Ironmans.
Or....a dozen vacations.
Tempting!  Have you ever refinanced your home?  Thought about it?  Anything I'm missing here?  Should we do it?  (The underlying question here is...do we have $6,000 laying around?  Well, no....but that's the next step :-P)

3 comments:

  1. It's worth it if you plan to be in your house 15 years from now. Otherwise it is not.

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  2. agree with above:)

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  3. I agree with Victoria. We did refinance our last house but didn't get to keep it because we needed to move because of finding a new job. Think about if you really will stay in this particular house before biting the bullet and refinancing. We had no other option but to move.

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