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One More Refinance

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I have a friend who I think refinances his home every two weeks. I exaggerate, but just a little. I didn't know how he does it without paying a ton of bank fees and appraisals and stuff like that. I know he avoids a lot of the fees by using a mutual lawyer friend for the closing.

I've been watching mortgage interest rates like a hawk lately. They were starting to tick upwards last month and rumors of interest rates going modestly higher were in high gear. I had started to think that I missed out on getting the best possible rate. However, I noticed that rates went back down an 1/8th of a point a couple of days ago. My forecasting tool at Bankrate didn't seem to indicate things were going to continue any lower, so I locked in a refinance with the bank.

I'm slowly starting to catch up to my friend in the refinance game. Having completed a double HARP refinance less than six months ago, this refinance of our third property will complete our dealings with the mortgage underwriters for some time - I hope.

What did I gain by this refinance? We bought this property only a couple of years, when the rates were still quite cheap. In fact, that was one of the motivating factors behind the purchase. So unlike the HARP refinances where I was bringing a 6% interest rate to 3.5%, this is smaller deal. We'll go from a 15-year fixed at 3.75% to a 15-year at 2.75%. (Somewhere my mother is reading that 2.75% interest rate and thinking back to the 80's when rates could be 12%.)

What does that mean in terms of dollars and cents? We'll go from a monthly principal and interest payment of $2327.12 to $1995.15. Simple math says that we'll paying around $332/mo. less than before. That's not bad for a few hours of work, right? Well, it's not quite as good as it appears at first glance. Right now, we are a couple of years into the 15-year fixed mortgage that we have now... we have around 13 years of payments left. With the refinance we'll take that balance and spread it back over the 15 years again. That's a good chunk of the $332/mo. savings. However, the lower rate itself is responsible for a $130/mo. savings.

So in the end, we'll get a little more financial flexibility in paying less each month, and we'll save what amounts to a typical cable, phone, and internet bill these days.

Posted on April 4, 2013.

This post deals with:

... and focuses on:

Mortgage, Real Estate

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10 Responses to “One More Refinance”

  1. Money Beagle says:

    I would use a loan amortization calculator to find out what extra payment you would have to make in order to complete your payment by the original 15 year term, then add that to your current payment each month. Sounds like you’ll still be pocketing some money even with that strategy

  2. Lazy Man says:

    We could do that, but there’s really no rush to pay things off in less than 15 years. I’m not sure that the 2.75% return on that money is worth it. The only reason why we went with the 15-year in the first place is to get the best rate.

    Also, from a emergency perspective, it is easier to keep the money than pay off early. If you hit tough times, you can’t tell the bank, “hey we gave you a lot of extra money early, so we are going to take a few months off of payments.” Getting that money out via a HELOC is also not an ideal situation. For these reasons, we almost went with a 30-year just keep more cash in our pockets to invest with.

  3. Steve says:

    We refinanced last November, closing almost exactly a year after we first bought. I have been manually watching rates since then, but haven’t seen anything lower, after costs. We could go from 30 to 15 but with interest rates as low as they are, the increase in monthly payment would be quite large. (Nothing we couldn’t handle, but again, with interest rates as low as they are, I intend to stretch the payback as long as they’ll let me.)

  4. Lazy Man says:

    Steve,

    I definitely thought about extending the payback as long as they’d let me, taking advantage of the cheap rates for a really long time. In the end, I went with the 15-year to get the lower rate and forcing us to put more money to good use.

  5. […] Man @ Lazy Man and Money is getting a mortgage  Refinance on a third […]

  6. […] Man @ Lazy Man and Money writes One More Refinance – I’m slowly starting to catch up to my friend in the refinance game. Having completed […]

  7. Logan says:

    Hey Lazy Man,

    I have to say I am a little disappointed. Your blog is very influential when it comes to money management and I feel you didn’t cover the big picture with mortgages/refinances.

    For example a financial planner is used to construct a financial plan that builds your “wealth bucket” which is very important for the long term. What people don’t realize is, great CPA’s and mortgage consultants work to clog or plug holes in your “wealth bucket”(taxes, debt, and cash flow) which helps you keep money in the bucket that can earn you more…. money.

    My point is, yes refinance and lock in a great rate but talk to an educated professional and let them know your short/long term financial goals. If they are a true professional, they will be just as important in shielding your wealth as a financial planner is at growing it.

    Cheers,

    Logan

  8. Lazy Man says:

    Logan,

    I’m disappointed that you tried to use this comment to promote your a generic niche website.

    Every article I write can not cover the big picture or advocate hiring a financial planner. I don’t see a need for a mortgage consultant, as it isn’t that complex a topic. It can get complicated with closing fees and such, but this stuff is very minimal in the grand scheme of the total mortgage and the idea of having the lowest APR for a term that you can make payments for.

    I’ve been studying personal finance for over 25 years now and I’m only 37 (read my parent’s Kiplinger’s), there’s very little that the true professionals have to offer. In fact, ones that affiliated with financial institutions, I find often have conflicts of interest.

  9. Logan says:

    Lazy Man,

    I’m sorry you thought I was trying to promote as I was only filling out the requested information. As far as the generic website, I am not a pro at building websites, I am simply putting it together to provide information to people trying to acquire their license because the NMLS site is quite confusing.

    I was not trying to say hire a financial planner I was just showing how a mortgage consultant can be utilized. We all know that if you would like to purchase a home you need to go through a mortgage consultant, so why not use one that is educated, it doesn’t cost more.

  10. Lazy Man says:

    I’ve purchased two homes with the aid of a mortgage consultant. You just call up the bank and they walk you through the steps. It’s pretty straight-forward as long as you don’t do something like buy more house than you can afford or get in ridiculous 50-year interest-only type product.

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