Revisiting Mortgage Financing
Back in 2010 I wrote an article on this blog titled Should You Refinance Your Mortgage? At that time, the state of housing was in total disarray all across the country, so I only addressed the monetary part of it.
In one regard, it seems like it could make sense. If you have a lousy monthly interest rate, which would be anything over 9%, it makes a lot of sense to do. Back then I said 7% but now I’d opt for higher. I believe that anytime you can reduce your payments by close to 50% a month it’s a bargain… well, to a degree…
When we refinanced our home back in 2003, our initial interest rate was 5.75%, which wasn’t bad but not as good as the newer rate we eventually got. We saved $200 a month, which wasn’t too bad.
The thing is, we’d only been in the house for 3 years. For a 30-year mortgage, that wasn’t all that long a period of time. Also, we were first time homeowners, so a big part of our payment goes to escrow; truthfully that’s a good thing because I’m not sure we’d have had the discipline of saving enough money to pay that off each year on our own.
Now we’ve been in this house for 15 years and, because housing is better, we get multiple calls weekly and UPS mailings from a few banks every week offering to lower our interest rate. Because we’ve been in the house longer, we’d supposedly get a monetary bonus, which we could use to put back into the house, pay off bills or have fun with. Sounds pretty good right?
Here’s the downside. We now have 12 years of equity in the house. That means we’re 40% through our obligation for paying it off. Since we’re both over the age of 50, it means that our working lives aren’t all that long for this world. Can you imagine if we had to carry significant debt into our retirement paying on a house that we might not live long enough to pay off?
We have as a plan to try to pay this house off in 10 years. We know what the amount is to pay it off now and figure we can wait another 7 years before it’s time to push just a little bit more to get it taken care of. If we refinanced now, with the rate we have, we wouldn’t come close to getting the promised cash back or savings and we’d be starting over again. Frankly, that’s not a great proposition at this juncture of our lives. If we’d only had the house 2 or 3 years, maybe…
Something all of us need to be ready to do is look realistically at our long term goals. Ours is to have the house totally paid off so it’s not something we have to worry about, and can set it up so that if we need the money for health issues later on we could sell the house and use all of its assets in that regard.
If you’re young, or you haven’t been in your home for all that long, looking at refinancing your mortgage might not be a bad idea. Just make sure the lower payments and the terms are beneficial for you. If you’re neither of these… go ahead and look into it but look at the overall experience with a more critical eye.