I have a confession to make: we have been procrastinating on refinancing our mortgage. There are good excuses; we only purchased our home two years ago and I can clearly remember the plethora of intimidating closing documents as well as all of the financial documents we had to gather in order to make everything happen. I also was not completely sold on the idea of refinancing because all of the financial gurus tell you that you should only refinance if you will be in the house long enough to recoup the closing costs as well as reap some savings. But in the end, we are still sitting on a 30-year mortgage at 5.5% during a time of historically low mortgage rates. And the thought of missing out on this opportunity makes my stomach lurch.
Fortunately, over the last few weeks I have plowed ahead with the refinance. No longer will I have to worry about how much longer these interest rates are going to be around; we now have a 3% fixed interest rate locked in for a 15-year mortgage. This will reap us interest savings of $112,000 over the next 30 years (versus if we stayed in the same mortgage loan we are in). We are not finished with the process, but far enough along that I wanted to share our experience and decision-making with you thus far.
The Decision to Refinance
I love finances and consider myself financially literate. I also hate to be in debt (something my husband and I share), and am shocked at the huge amount of interest we will be paying over the next 30 years if that is how long we take to pay off our mortgage. However, this has not been enough to motivate us to send in extra payments on the mortgage. That’s right—we have not sent in a single extra payment over the last two years. This is surprising even to me! So I know that in order for us to meet our goal of paying off the mortgage in a much shorter amount of time, we need to have the extra payments locked into place. This has made getting a 15-year mortgage a priority for us.
We were not completely sold on the refinance because of closing costs and not knowing if we will stay in this house long enough to reap the savings. It’s not the home; we found the perfect home for us that is large enough to build a family in (should we decide to do so). In fact, we’re absolutely in love with our home. The only reason we would ever move is if we decide to change locations. Currently we are in Houston, TX and loving it here. But I am originally from Pennsylvania, and we often toy with the idea of one day moving closer to the Northeast. Who really knows?
While speaking with the refinance agent, it dawned on me that if I roll the closing costs into the mortgage that we will still have paid the house off in 15 years (plus the two years we have been paying on the loan all ready) if we stay in our home. And if we do move to another state, then we only paid a portion of the closing costs anyway. This does mean that we will be paying interest on the closing costs, so you need to weigh this into your own decision-making. But for us, it seems like the way to go.
Our Refinance Process
Once we decided to move forward, we called our current mortgage company to see what offers they could give us. The offer was actually in line with others I had received in the mail, so we decided to simplify the process by going with them.
We have a VA loan, so I was pleasantly surprised to find that they do not need to conduct a credit check on us, and the overall process should take less than 60 days instead of 90 days. Once I filled out the application with an agent over the phone, we locked in our rate. This was without a commitment from us. We received all of the documents in the mail, as well as a phone call from the title company that we will be dealing with.
Our next step is to read over everything, and gather some tax documents from the last three years to prove our income.
We are not finished with this process, but are well on our way. Fortunately, our interest rate is locked in for 90 days (of course it would be unfortunate if the interest rates decrease even more in those 90 days!), and so we can afford to take some time to read over all of the documents, figure out the escrow account, and get comfortable with our mortgage refinance.
Have you gone through a mortgage refinance? What is your new and old interest rate? Any pitfalls I should watch out for?