Personal Finance

Refinance or Not: A tale of two banks

Yup, I am talking about my mortgage again! Here’s a little tale of the two banks competing  (in my head at least) for my home loan needs. I am currently relationship is “Bank WTH”. Since I became debt free except the mortgage, I started re-examining this loan. Earlier this year, I decided take advantage of the Home Affordable Refinance Program and do away with the adjustable interest rate I had. I ended up with a decent rate: 4.25% for 20 years. Click here for a little more about that. Since then, I have gone back and forth about how I should pay this off. If you have been reading this blog for a while, you’ve seen me waver back and forth regarding how to pay it off early: 5 year, 7 year or 10 year goals. You’ve also seen me contemplate refinancing it.

Here’s what I hate about my current company:

  1. They misplaced a $8,000 payment I tried to make. Yeah…
  2. They then charged me $7 and a $25 late fee once I had the payment reversed from my bank. They have waived the $25 after I called to complain.
  3. They thought I mailed in a $7 mortgage payment and I had to call them and have them manually apply it to the random $7 I owe for them losing my money.
  4. They only apply extra mortgage payments once a month. Any additionally payments I make are placed into an account and applied once a month so they get more interest out of me.
  5. The only way to make extra payments is either to mail in a check for them to erroneously apply to my account, pay $7 for a third party company or schedule electronic funds transfer for a set amount each month.

Blogger Nurse-On-Fire was the first to plant the seed in my head that there might be better companies out there. Recently, I was in our main institution where we do most of our banking “Bank Bae” and the teller said, “Have you thought about refinancing with us?” I told her that I had not and I was content in my bad relationship with Bank WTH. She was like, “At least have one of our people call you and review what we can offer”. I agreed and sure enough, I received a call with a promise of a rate of 2.875%.

I still wasn’t convinced and turned to my trusty readers who for the most part were like, “Step away from the refinance”. Since then, I have been going back and forth with Bank Bae trying to make my mind up. I finally made a list of the determining factors that would have to be in place for me to refinance:

  • Increased monthly payments – the new loan could not be more than $50 more than my current loan. My budget is already tight; no need adding extra stress.
  • Flexibility  – if I was to lose my job or have an unexpected change in our expenses, would I still have the flexibility to stop extra payments. Wiggle room is important since Murphy’s law is a real thing. (as pointed out by Ernie and Pamela)
    3. Loan amount – the refinance loan amount they presented to me was $180,000 when my current mortgage balance is around $170,500. That makes no sense. (thank you MindfulMinimalism for seeing that).
    4. Amount of money saved – A refinance has to save me money in the long run. If closing costs are more than what I will save by the lower interest rate, it is not worth it. I need to save at least $2,000-$3,000 for it to be worth it.
    5. Extending payoff date – By no means can this new loan take me longer to pay off! That’s the whole point! Pay it off early. (great advice by Pamela and Feisty Froggy!)

The only reader who was like “Do it!” was Mary. So…what do I think I did? Vote in the comments #teamBankWTH if I am staying with my current bank or #teamMary if I am refinancing.

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6 thoughts on “Refinance or Not: A tale of two banks

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