As you know, paying off our mortgage is the primary goal I am working on. My dream/stretch goal is to pay it off by December 2020, but currently June 2021 is the more realistic date. I have been toying around with ways to pay it off faster. I was recently approached by the financial institution where we do most of our banking about refinancing my mortgage with them. I told them they probably couldn’t make it worth it for me, but to give me a call anyways.
Well, they called me on Tuesday and presented some numbers to me. Here is the breakdown of the difference:
| Current Loan | New Loan | |
| Balance/Loan Amount | $174,345.21 | $180,000.00 |
| Interest Rate | 4.25% | 2.875% |
| Years | 17 years, 11 months | 15 years starting 1/2017 |
| Projected interest I will pay if I don’t make any extra payments | $76,193.77 | $41,805.99 |
| Closing Costs | $0.00 | $3,333.00 |
| Monthly Payment | $1,171.60 | $1,232.25 |
| Interest I will pay with my extra payments | $19,556.22 | $12,563.18 |
| Payoff date with extra payments | June 01, 2021 | October 01, 2021 |
From first glance, the new loan has some great positives. 1) Much lower interest rate 2) pay a lot less in interest if I wasn’t making extra principle payments 3) shorter loan term and 4) ~$7,000 saved in interest with extra payments. The negatives are 1) higher monthly payments – about $60 2) five extra months added to when I could pay it off getting further away from my goal of December 2020. 3) Pretty high closing costs! 4) Taking out a higher debt amount that I currently have.
Over all, if I subtract my interest savings from closing costs, I would save about $3,600.00. That’s not a huge amount, but still sizable savings. Also, it would be much easier to snowflake random amounts with the new loan. I was assured that I could make principle payments at any time that would be applied immediately to my loan. My current loan does not allow me to do this and will only apply extra payments once a month. Perhaps I can at least make up the 5 months by making biweekly payments instead of monthly.
So readers, what should I do? Love to hear your advice on this!
The C.F.O. Mom Blog 
If you think you typically “overspend” by at least $60 a month, would this become sort of a forced savings program or forced budget control if you will? Does that work well with your personality? The numbers seem to work.
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We definitely spend $60 or more a month that could be put towards the increase. I like the idea that if we stop making extra payments, we still will finish early with a lot less money spent on interest.
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It appears that your current mortgage agreement is working for you and with lower monthly payments, it gives you the financial flexibility you may need in the future. Since you are fairly disciplined with your money I don’t think the refinance will do much unless you plan to change your goals and extend your time horizon
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Yeah, I think if I continue on my current repayment plan, we aren’t gaining much at all. However, if something happens to one or more of our jobs, it would be nice to save a lot of money on interest! Currently, my employment is only guaranteed until June 2017. This is tricky. Should I make a decision based on what my plan is or worse case scenario? Hmm…
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I agree with Pamela. I refinanced 5 years ago and now I miss the financial flexibility I used to have with my old mortgage.
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Interesting. Was your old mortgage for a longer term?
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It was – 30 years. Refinanced to a 15. The 15 was great when things were going well – I was paying down the principal quickly and saving money on interest. However, when we got hit with a storm of med bills early this year and my wife had to cut back her hours, I sure wish I had that 30 year monthly payment. It would have given me way more flexibility to deal with the bumps in the road. But since I was in my 15 my budget each month was very tight. I got myself in a hole that I’m still digging out of. Had I still had the 30 I would have been able to knock out the med bills quickly because I would have had that flexibility in my mortgage payment. Oh well. Hindsight is 20/20. But going forward I’m always going to opt for the plan that gives me the most financial flexibility.
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Thanks for sharing your experience. I hadn’t given thought about having flexibility if our situation changes. You’ve definitely given me more to consider.
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IMHO–No you should not do this. You never really save money by spending money–and that’s what this amounts to. The bank is in the business of making money, not of doing what’s best for you and your family although I’m sure many bankers would try to present “what’s in your best interest.” Getting clear of the debt is what you want and that will happen sooner if you stay on course.
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Yeah, I am kind of thinking the same thing about the added cost. I think I’ll see if they can lower the closing costs and reduce the loan amount, so else it isn’t worth it, right? I am mostly convinced not to do this, but if someone offered me $3K, I wouldn’t turn it down.
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I may be having a dense moment, but why would you need a higher loan amount to the tune of $6000? If necessary to ensure the low % interest, could that $6000 not then be paid off on the loan, thus resulting in an earlier pay off date (by about 5 months ish)? I’m sure I must have misunderstood something.
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No, you have a good point. That’s the number the loan company gave me and I’m not sure why. I’ve shared my hesitancy about refinancing and they are going to try to get me some better numbers.
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