Should we Refinance?


house.jpgIn January, I wrote about how we’re not refinancing our mortgage. Well, I kinda lied. We’re kicking around the idea right now. The rates just have been enticing and I want a piece of them! There are a few problems, though, and I’d love your input on what you think we should do. Here’s some background information:

We currently have a first mortgage of around $117,000 at 6.375% for 30 years (28 approximately remaining).  Our payment is around $953.00 a month which includes escrow.  We have a second mortgage of around $20,000 with an interest rate of 6.875% for 20 years (18 remaining).  We put 5% down when we purchased the house two years ago.

What we’re thinking of refinancing to is a Home Equity Loan with an interest rate of 5.59% fixed for 30 years.  Doing so would lower our monthly payment down to around $1,000, saving us around $130 a month.  Right now, to me, having that extra cash flow is awesome.  There are a few things I’m concerned about though.

-It would extend 10 years on our second mortgage

-The maximum loan to value for the loan is 85%, and I am afraid that our house is not worth enough to be able to qualify.  This is the biggest fear.

-I would extend the first mortgage by 2 years (no big deal).

Here are some positive things:

+I could possibly be able to stay at home when we have a baby and that is something that is very important to me.

+The closing costs are low, around $400, so if we decided to sell our house I wouldn’t be heartbroken versus spending $2500 in closing costs on refinancing our mortgage with a broker.

+Obviously lower interest rate.

+Increased cash flow to put to other debt.

What’s holding me back from applying is that if we do apply and get declined due to the house value, our credit scores would be affected.

What is your suggestion: keep it how it is, refinance, or something else?

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5 thoughts on “Should we Refinance?

  1. Kacie says:

    The closing costs are so low that it seems worth it.

    I’d be curious to know how this refi would change the total amount of interest you’d pay over the long run, assuming you make no extra payments. It’s probably significant.

    Having an extra $130 per month would be nice to put toward debt and should speed up your progress.

    But surely the difference between you staying home with children isn’t a measly $130/month. I’m guessing getting debt paid faster is the real thing that would impact your SAHM status.

    If your credit scores are dinged, so what? That shouldn’t affect your current debts and by the time you’d want to sell your house, your score would likely recover.


  2. Tiffany says:

    I was going to say the same exact thing as Kacie. If you are able to save some extra money to be able to snowflake into your debt, it’d be worth it. Plus, the closing costs are CHEAP considering!


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