Should I Refinance my Mortgage?
Last June we refinanced our first and second mortgage (I didn’t follow my own tips for a first time home buyer) and secured a lower mortgage rate. We signed for a 30 year mortgage in order to keep the payments low. We wanted to know we can afford the payments so I have flexibility in my career. You never know, I may want to be a housewife one day and I want to know I have that option! When we refinanced our mortgage, we went with a loan that didn’t provide an escrow service for us, so we had to do that ourselves. Not a problem; we actually enjoy saving money ourselves for homeowners insurance and property taxes.
Thankfully, the closing costs of refinancing only were $150. The only drawback? There is a prepayment penalty on the loan, and the only way I can avoid a prepayment penalty is if we make a large payment on the loan and then wait a day and pay the rest. I don’t know about you, but I don’t have over $100,000 just sitting in our bank account, so we’ll eventually have to pay a prepayment penalty that will likely be over $1,000. I was aware of this prepayment penalty when we refinanced, and we had no closing costs, so I’m not going to complain too much. Had we gone with a conventional mortgage refinance, the costs would have been a lot greater.
Anyway, my point here in all this is that I’ve been considering refinancing again. Mortgage rates are at a historic low, and I’d love to get a mortgage in the 3-4% range. That would be awesome! I checked today, and we could refinance for as low as 4.32% and our payment would be about $150 less than they currently are if we went with another 30 year mortgage. Of course, I know we’ll pay closing costs with this mortgage so I’d have to factor in about $1500(?) for closing costs, plus the prepayment penalty from our current mortgage (at least $1300). With that alone, I’m looking at $2800 just to get a lower rate! I’d make that up in 18 months, and we plan on staying in this house for at least that long. However, I don’t know if it is worth it. I’ve thought about trying to refinance into a 15 year mortgage, but I don’t know if I’d want the higher mortgage payments each month.
I think I’m just going to keep our current mortgage and maybe start paying a little extra on the principal each month as I see fit. At least then I’d be saving myself money that wouldn’t be going towards interest. Plus, I feel like I’m “making” 5.59% on my money then, and we know there aren’t any savings accounts or certificates of deposit that are paying that right now!
I’ll be honest: the 3-4% mortgage interest rates are really tempting, and I almost wish they weren’t that low so I wouldn’t be tempted! It’s so hard to decide how to handle money sometimes. I think as long as we live below our means, we’ll end up fine and I shouldn’t worry about it so darn much.
Do you think I should refinance my mortgage?