I am busy. really busy. Two kids, busy in full time job. So the last thing I wanted to do was deal with a refinance (paperwork! Annoying email from the bank!). Until I did the math. Even though my original mortgage rate was reasonable (3.6%), shortened my loan term and lowered the rate to 2.62% – Some 15-year REF rates are around 2.5% and some 30-year rates are around 3%. – Was going to save me about $60,000 over the life of the loan. Was it a lot of paperwork to referee? Yes. But that $60,000 is going to help pay for my kids’ college. Here’s what I learned from the process, and what others who have done the same share with me.
It may be worth it, even if you already have a very low rate.
Our rate was already below 4%, but it was still worth refinancing. We reduced our loan tenure to 15 years, and we reduced our rate by about a single point. NerdWallet’s Holden Lewis recently told MarketWatchPix that the general rule of thumb is that refinancing is worth it if you can shorten your loan term and/or lower your interest rate by as much as three-quarters of a percent. , and you plan to live in the home for at least a few years to cover all the costs associated with a refi.
Shorten your loan term if you can.
This was a huge savings for us, having about 25 years left on our existing mortgage, and reducing the term to 15 years. This raised our monthly payments a bit, but not more than we could manage, and the savings are going to be significant over the life of the loan.
Don’t neglect shopping points, if that makes sense.
It’s easy to forget about discount points — which are basically a form of prepaid interest — when you refinance, but they can pay off. A discount point costs about 1% of your total loan, so a point on a $300,000 loan costs $3,000; You will get about 0.25% reduction in your interest rate per point you buy. For us, buying points made sense because we had cash left over to pay them upfront, and we knew we’d be in our home for a long time. Here’s a guide to who should buy discount points and who shouldn’t.
Yes, there is a lot of paperwork…
I knew there would be and yet it surprised me. W2s, bank statements, mortgage statements, tax returns – we supplied it. My husband runs his own business so came another set of requests for his P&L statement and business tax return. It took a while, but we broke it down, assembled all the items in a manageable time over a few weeks and got it done.
,But the feeling of not handing over money to the bank unnecessarily is quite amazing.
I was intimidated by the process of a referee, and yes, it was annoying at times (the bank was asking us for items we had already deposited; the first appraiser was saying he couldn’t arrive for 45 days) ). But the savings sound great. It’s $60,000, I’m paying myself, not the bank, and I sure like the sound of it.
—- Brienne Walsh . with additional reporting by