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Refi Relief

July 28th, 2011 at 10:55 am

I think my cautious nature, plus other random circumstances, and continually falling interest rates, has contributed to the fact that we have refinanced more times than I can probably remember at this point!

Every time I can save 1% interest, it seems like a no brainer to refinance. (I am not talking about cash out refinances, borrowing money, blahdeblahdeblah. JUST lowering the interest rate!) But, hell if I was going to sit around and wait for something better. I didn't have the crystal ball that said rates would slide down to rock bottom the entire first 12 years+ I owned a home. I could have just refinanced once or twice to the same end - had I known!

Anyway, I was *just* seeing 15-year mortgage rates at 3.75%, and I had to salivate. They've probably been around awhile, but I completely wrote off the 15-year mortgage at this point in time. Easy peasy if we are both working. But, just a tad too much to take on without a second income.

For whatever reason, I ran the numbers anyway, on the latest and greatest. The extra push to get our balance down to $199,999 this year, seemed to significantly decrease the payment from last I checked. Probably lower interest rates, too (though just barely). We also have the cash to pay the closing costs (maybe we didn't last time I looked).

Payment? $1450 per month.

Really, it's nothing. Our initial 30-year mortgage was MORE Than that. $1500-ish. We've paid $1300-ish on FAR less income.

But, alas, I have really taken a liking to my $1125/month mortgage payment. It's really the only reason we are making progress on our other financial goals. $1450 is probably extremely reasonable considering my income. BUT, I am also paying $1000/month for health insurance. That's obviously the reason I can't really stomach what is otherwise a VERY Reasonable payment.

I decided to run the numbers as if we just paid $1450/month on our current mortgage. Any time I have done this exercise before, we come out MILES ahead on the refi. We are talking a 1.125% decrease in interest!

The verdict? Not so much this time. Huge sigh of relief!

I need to pre-pay $15,000 at some point. If I do so, the $1450 payment knocks out the mortgage in exactly 15 years.

$15,000 might seem like a lot, but once you consider the cost to refi, the hassle factor, the tying up of cash, and the $325 increase to our minimum payments, it's nothing. So we maybe have to come up with $10,000 more - than refi costs - in exchange for some huge flexibility (a LOW minimum payment).

For the first time ever, it just doesn't make sense to refi. Hallelujah!

All that said, I am excited because my goal to pay off our mortgage at age 45 seems little more than a pipe dream lately. I think *this* 15-year plan is doable, and it puts us at mortgage payoff about the time of my 50th birthday!!

Dh then just needs to work enough to knock off 5 years off the mortgage. That, plus the $15,000 I mentioned. If he never works again? I can live with the age 50 pay off. It would mean only 25 years of even having a mortgage, and we'd have our parents beat by a couple of years.

I think between gifts, overtime, etc., we can aim for the extra $3900 ($325 x 12) per year to the mortgage. I am motivated because forming the plan to pay an extra $3000-ish this year seemed like a huge pipe dream, but we are well on the way. I am motivated by how powerful thought and a plan is.

I haven't tried before because too behind on other financial goals. The last decade was definitely: *screw the mortgage - time with our kids is more important - working more would be insane anyway.*

But, today, we are at:

**Rebuilt cash savings. Should reach $30,000 by the end of the year. Have not had this much cash since the DINK years. I feel like we are getting back on solid ground.

**We are maxing out our ROTHs. $10,000 per year.

**As of next week, dh has about 7 hours per week day free to work (no daycare costs). With the economy and all, I don't expect him to be working full-time next week. Hardly! But, being overly aggressive on the mortgage for one or two years doesn't really mean much as we ramp up our income. The last decade it might have left us behind in other savings goals. We might have to be creative for the next year or two, but eventually a second income will take up the slack.

I go back and forth because I regret tying too much cash in the mortgage, in the past. That said, I also feel defeated at how little progress we have made on the mortgage since having kids. I just need to find better middle ground. (In addition - seeing way too much under-employment once hitting age 50 - in the family and such - even before economy really went south. I feel extra motivation to be mortgage free by that age. Age 45 goal comes from the wish to be mortgage free before kids start college).

If interest rates stay low, though, I wouldn't be surprised if we take on a 15-year mortgage if we have an income boost. Though I always caution taking on more mortgage than needed, the flip side is we are talking about extremely reasonable territory with these LOW interest rates. The more we pay off, the more reasonable the 15-year payment is.

5 Responses to “Refi Relief”

  1. librarylady Says:

    Who do you have your mortgage with?
    I do consider refinancing, for a better rate but wonder about the closing costs and such.

  2. LittleMsMom Says:

    It is hard to see those LOW 15 Year Mortgage Rates, and not want to refinance.

    I keep talking myself out of it as a safety cushion.

  3. MonkeyMama Says:

    @librarylady - The couple of times I have re-financed purely for lower rate, I saved enough per month ($200/month, each time) to pay off the fees in a year or two. (Breakeven). I also run my old payment through an amortization schedule (with new rate) and see how much faster we can pay off the loan. Fees considered, if you pay it off faster, you come out ahead.

    My analysis maybe isn't quite so favorable since I am not comparing apples to oranges. (30 year versus 15). At 30 year, why not knock $200/month off my payment, keep paying the old payment, and knock years off my mortgage? Is a no-brainer!! 15-year may math may come out the same, but paying more is a VERY different trade-off. It's just not as enticing, to me.

  4. Jerry Says:

    I love reading your analysis of things because of how your brain works... it leads me to see things in a different light a lot of the time. The thing that really shocked me was the size of your health insurance payment every month - that is a huge chunk of change, and it's one of the things I am not looking forward to when we come back to the States.
    Jerry

  5. MonkeyMama Says:

    @Jerry - what a nice comment!

    Well, to be fair, our *insurance* is $750/month. But deductible is $3000 per year ($250/month) - and with dh's brain tumor - we will hit it every year. Combined, amounts to about 15% of income. Thought it's insane and been a rough adjustment the past decade (I have blogged much about that), our health insurance is EXCELLENT, no BS, and we have most definitely gotten our money's worth. (I was just telling dh about all the crap everyone I know is going through with their insurers - we were just commenting about priorities and how it's not worth being cheap in this area!)

    That said, for what it is, our plan is on the *cheap* side. It is pretty ugly out there! When I first got pregnant, I Was paying $100/month for $0 deductible coverage (myself only). This $1000/month bill was not on my horizon, that is for sure! It will surpass our mortgage as #1 expense in next couple of years. Living in California - how scary is that?

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