We’re always looking for a way to lower our recurring expenses whether it be car insurance, cable or phones. One cost I haven’t been successful in lowering during this blog’s lifetime is the mortgage. But that changed.
Refinancing Isn’t for Everyone
Every time the interest rate dropped a point we would look at refinancing. There were several reasons it didn’t make sense for us to take advantage of the opportunity.
- We don’t owe enough. Most banks won’t lend us the small amount of our mortgage. Now, $50,000 may not seem like a small amount but you can’t buy anything other than a mobile home in San Diego for that figure. Our credit union will loan us $50,000; we owe a few thousand less so we’d have to borrow more than we need.
- Refinancing Costs. The credit union wasn’t charging for points but even though we have multiple times the equity of what we were borrowing, we’d have to go through the whole rigamarole for a refinance including appraisal, title check and whatever else is involved. That adds up to over $2,000!
- Interest Payments. With refinancing even though the payment would be lowered we’d start over in interest payments and that means less going to our principle balance than we are currently paying. We are not fans of giving the financial institution more money than we need to.
- Clock Starts Over. With nearly 1/3 of our 15 year mortgage done we didn’t want to start the timeline over again. Yes, we could pay it off earlier but mentally it’s not the same.
A New Offer
Last month my husband noticed a new mortgage offer at our credit union. They were offering 10 year fixed rate loans for the first time and at the low rate of 3% with no points. The closing costs were still about $2K but with the savings and not increasing the life of the loan we were intrigued.
While I was talking to the loan specialist at the credit union she mentioned they also have a rate modification option. It turns out we could drop our rate to 3.25% on our current loan by filling out one document and agreeing to pay $750.
I couldn’t find anything about this program on the credit union website or in any materials. We jumped on it and are thrilled that our existing loan is in place. The monthly payment is about $70 less per month and more of the payment goes to principal than before!
It’s disappointing that we could have never known about the modification offer, so if you haven’t talked to your mortgage lender lately give it a try. You might end up with more money in your pocket every month. Have you refinanced or modified your mortgage?
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I refinanced roughly 8-9 years ago with my bank. I negotiated with the existing lender and managed to throw out the many of the garbage fees in the closing expenses. i went from a 30 year to 15 year loan. Now I have a very small loan balance that does not make sense to refinance.
I’m sure you’re paying mostly principal now. Won’t be long until you’re mortgage free!
Our problem has been how underwater we are on our mortgage. At anywhere between 100k and 140k upside down, mortgage companies have said either (1) you have to have PMI which would run us about $300/month or (2) write us a check for the amount you are upside down and then we’ll be in business. Who has 140k laying around in a bank that they can write a check like that – besides Mitt Romney. It has been extremely frustrating particularly since we could have a 3.0 – 3.25 % point reduction in our interest rate if we could just refinance.
Kevin, I can understand your frustration. Not that it’s any consolation but I’m sure there are many in the same situation.
Do you qualify for HARP?
I got denied 6 times for a modification.
Jai, that’s awful! Did you want just the rate modified or the loan amount?
Interesting read and good to know.
We’ve done a no-cost refinance twice with Wells Fargo. The third time we tried they said no…
I refinanced to 5% for 30 years about two years ago. Recently I walked into my bank and they wanted me to refinance to a 4.25% rate. After all the fees I would have saved a few dollars per month, yet I would have started the clock again. no thanks!
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