We did it! After two months of hemming and hawing, Kris and I finally closed on our mortgage refinance, dropping our rate from 6.25% to 4.96%. Bright and early yesterday morning, we made a trip to the title company, and we signed all of the documents. We were out of there in only half an hour.
How’d we do it so fast? Don’t I advocate reading all contracts before you sign them? Absolutely. So when then the title officer called on Friday, I let her know in advance that I needed to read everything first.
“Thank you for telling me,” she said. “I’ll give you your copy of the documents so that you can read them at home over the weekend.”
And that’s just what I did. It took several hours, but I leafed through all 107 pages, looking for anything alarming. I can’t claim to have understood all of the arcane legalese, but I gave it my best shot (with Google’s help), and I didn’t find anything that raised a red flag.
Because I’d read everything in advance, closing was a breeze. The title officer was amused when she noticed I was making tick marks on a piece of scratch paper. “Are you counting how many times you sign your name?” she asked. I sheepishly admitted that I was. (Over the course of 107 pages, Kris and I signed our names 29 times. We initialed 21 items.)
Now we’re done, however, and we have a new mortgage. Our payments (for principal and interest) have dropped from $1386.60 to $1137.70 — a savings of $248.90 per month. It will take about a year to repay the closing costs, but then the new loan will save us money over the next 29 years. (Well, not actually 29 years. We’ll continue to accelerate our mortgage payments.)
Remember: Saving money on the little things every day is great, but saving money on the big things can make an awesome difference to your budget. You’d have to wash a lot of baggies to save $250 a month!
You can see the first two parts of this series here: from December 19th, When does it make sense to refinance a mortgage?, and from February 3rd, Refinancing made easy: Our story.
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That’s awesome JD!
You bought a new house and your payments went down – I like it:)
How did that happen? I guess I’m missing out on some of the details.
I laughed when you mentioned the ticks on the scratch piece of paper; I wasn’t laughing at you, but from recognition. I come from an engineering background and my wife calls me the anal-izer from time to time…. it’s all in fun
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Ha! Kris calls me Overanalytical Man. It’s my super-power!
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Congrats on finally signing everything! What do you plan on doing with your new found monthly savings?
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@Studenomics
Have I mentioned I want a new car?
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Congrats on getting it done – I need to look into this as well.
So you are paying down the mortage in advance? I heard that wasn’t a good idea. (just kidding).
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@J.D I think it’s only fair you get that new car now, you worked so hard on saving money on your monthly mortgage payments that Kris owes it to you.
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“then this loan will pay for itself over the next 29 years”
Isn’t this a little exaggeration? You are still paying for the loan (principal & interest)…
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JD, what’s your take on using the difference in monthly payments for savings, vs refinancing and keeping your monthly payments the same so that your mortgage will be paid off sooner?
I’ve been looking at ours, and dropping the interest rate about a percent would get us $150/mo cheaper payments, or we’d have an extra 7,000 in equity in the property after 4 years.
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Refinancing is in the air.
Do you play with amortization tables in order to see when you will pay off the loan at your current rate of overpayment?
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@John
You’re right. You’re right. What I mean is that the costs of taking out the loan will have paid for themselves. I’ll fix it.
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Brilliant suggestion to read the contract ahead of time from home….never thought of it, but will sure remember it.
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I am surprised that you went with the 30yr instead of the 15yr. I read the other article explaining your method. If your end plan is to own the home, part of that should include the time line. I understand the 30yr gives you flexibility. Some 30yr have a penalty if you pay it off early. Was any of that in the 120+pg documents?
Congrats on the $250 savings, it will add up to that new car quick!
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What great news!
Just wondering, NOT trying to start up the whole prepay mortgage versus investing extravaganza, but does investing still come out better on paper if you have no plans to move from your home, ever?
Sure, big, unforseen circumstances can and do occur, but barring that, my husband and I don’t plan to move from the home we’re building.
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JD, congratulations man, glad you finally got the lower mortgage you were looking for!
-Nate
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Hi JD, Congratulations on the refinance!
I’m wondering if you have any advice about how much is reasonable to pay in terms of closing costs? It seems like this amount varies a lot among the different mortgage companies, in addition to the point/s they may charge for the refinance?
thanks for any thoughts!
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JD — You may have mentioned this elsewhere but how come you refinanced for a 30 year mortgage? Did you consider shrinking the mortgage term or was the monthly payment for a shorter term just too expensive?
When my husband and I refinanced we dropped our 30 year mortgage down to 15 years, we paid off a chunk of principal at the time but our monthly payments are now just a little more than we paid on the original mortgage.
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And just to be paranoid, how do you know that the papers you signed where the same as the ones you read over the weekend?
Just because someone says they are the same does not make it so.
You should have just edited the file you got printed out the 107 pages, inserted some little clause to your liking and made them sign it.
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Congrats!
I’ve been looking into refinancing myself, but the condo I bought 2 years ago is worth less than the 80% I financed =(
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My husband and I have vowed to only purchase homes we can afford on a 15 year loan. Though we have half the size home as our friends, over the same amount of time we have twice the equity. Our home is for sale and now we can afford to step up to a larger home, keep our payments the same, and at a 15 yr mortgage with a large down payment and we own our home 15 years from now.
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I never read my mortgage papers before I sign them. There is a 3 day right of rescission for all 1st mortgages. So I read the papers the night I sign. That way I am reading the exact papers that I have signed and have 3 days to back out if the mortgage doesn’t match what I was told.
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I believe in the other posts he mentioned that although he took a 30 yr mortgage, they’re planning on keeping the payments the same as what it was before.
But, if something were to happen, they can stop prepaying and use that to instead build his chicken coop or whatnot. Once the crisis has passed, they’ll continue to accelerate their mortgage payments.
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Congrats on the fiscal improvement, JD!
I was really hoping to take advantage of the stimulus package. It would have dropped our mortgage from 40 yrs at 8.63 to 30 yrs at 5.25, and decreased our monthly payment by a full third. But, since we were unemployed in July and have been working like dogs since to make ends meet, we haven’t missed a payment. And since there is no work in his field, we’ve been working freelance. Not having a W-2, they tell me, disqualifies us. I am NOT a happy camper at all. We really needed the help.
Oh well. Nothing has changed, really. We’ll still pay as long as we can and hope for work.
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Congrats!!!
And HEY – I wash my baggies! LOL
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Hello Mini Cooper…
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Why I took out a 30 year mortgage
Kris and I pay $2000 toward our mortgage every month. We would do this whether we had a 15 year loan or a 30 year loan. So, in essence, the loan term is irrelevant. The only thing that matters is the interest rate.
Now it’s true that we could have obtained a better interest rate if we’d gone with a 15 year term, but that would have sacrificed flexibility. What happens if the blog market crashes?
So, we chose to keep the 30 year term, paying a little extra in the long term as a sort of “catastrophe insurance”. Does that make sense? We actually hope to have the home paid off sooner rather than later…
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Congratulations J.D.! That was a great move.
I noticed today at Penfed’s site that the rate for a 15-year loan is more than a 30-year! (5.25% for 15 v. 5% for 30.) Now this is probably an anomaly, but I found it interesting.
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Congrats on the new mortgage; it sounds like you did a thorough job venting the paperwork. Enjoy the extra $249 a month.
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Great post. My cousin has a car loan and has been asking about the economics and approach to refinancing that. Do you have any research or thoughts on that angle?
Keep up the great work,
Rob
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Hey JD, congrats !!
LOL @ your comment about washing baggies !
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Are you going to use the extra money you are saving to pay down the mortgage quicker?
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JD,
I am currently going through the refinance process myself. For comparison purposes I was wondering what your break even time was or in other words, what were the closing costs associated with the 4.96 rate you receive?.
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Congrats to you!
I might have missed this, but may I ask what your total closing costs were?
We patiently are looking to do the same. We’re currently at 5.75%, don’t know what we may find that is lower.
..and I’m a baggie washer too!
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Mike B, I don’t have the docs in front of me, but my recollection is that it will take exactly 10 months to pay off the closing costs. That is, the closing costs were in the neighborhood of $2500.
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Also, there’s nothing wrong with baggie washing! It just takes longer to save $250 a month doing that than to refinance your home.
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Hey JD -
Maybe I missed this – but where did you refinance, was there any points, and how much were closing costs?
If I can get. 4.96 on a 30 year, I need to jump on that.
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The most minor of quibbles… but something to remember when you refinance is that part of lowering your monthly payment comes from a decreased principal that is once again stretched over 30 years. And depending on how long you’ve had your previous mortgage, that can make a big difference. But my point is that it’s not really a savings “per month” of $250 because you’re not on your original 30 year timeline. You’re on a revised timeline. Now, as you said, what matters it that you’ll still be paying $2000/mo and more will go towards principal now, which is where you catch up on the closing costs, and then start to shorten your timeline to where it is now, and then finally shorten the timeline to be better than your old mortgage.
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It is *impossible* to save $250/month washing baggies, unless you spend over $250/month on baggies in the first place.
Also, it can’t really take longer to save any amount of money per month. It takes exactly one month to save $X/month.
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@ Jason B.
I noticed that too, but I wasn’t going to say anything. Dropping from 6.25% to 4.96% will save JD ~$226 per month in interest. Actual saving due to adding the closing costs onto the end are a LITTLE lower. And though this will go down every month as his principal is reduced this is an okay estimate for the first year.
This calculation is easier since either way he will be making the same payment. Things get a little fuzzy when the payment adjusts because the new amortization throws off the principal and interest portions to meet the new payoff date.
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Well darn it J.D., just think of all the baggies you can buy NOW with all that extra money.;)
LOL!
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Congratulations! My wife and I are actually closing on a refinance mortgage tomorrow to do the same thing. Our payments are going down $175 per month, and we’ll continue paying the same amount we have been to pay off the 30-year mortgage in approximately 21 years.
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Fantastic! This is one of our goals as well. Congratulations on pulling the trigger and getting it done! ~ Solid Planning
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It’s a smart approach JD, choosing the 30 year to be safe, but then paying the mortgage down with extra principal payments. My husband and I ran the numbers and considered the ‘what if’ scenario quite a bit before ultimately deciding on the 15. I think this makes perfect sense, especially considering your current line of work.
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Congratulations! My wife and I are in the process of doing a refinance ourselves, though we’re going for a shorter term product (allowing us a better rate than longer-term loans would) as we plan to pay off the house in about 4 years.
I did a fun little spreadsheet – and you know I’m a math nerd if I can call a spreadsheet fun – as I was looking at different products and possible interest rates, and we’ll recover our closing costs via interest savings in about a year. Even with our greatly accelerated payment plan, we’ll still save a couple thousand $ in interest by the time all is said and done.
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Glad to hear you pulled the trigger, nice job shaving off so many percents.
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Congratulations JD! My wife and I just closed on our own refi on Friday. We went from 6.5% to 5.125% and are now saving over $700 a month. We’ll recoup the closing costs in about 7 months and, lucky for us, the home (apartment) is already worth 2x what we paid for it 3 years ago (but who knows if that will be true next month).
Again, congratulations!
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JD – my husband wants to refinance our place. We’d drop almost 2% but we also want to sell next year. Is it worth it to refinance? What does that do to our FICO score? Anything? Just looking for thoughts as to how to proceed.
Congratulations on your job well done!
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@Leslie (#45)
It might be worth it to refinance. The only way you’ll know for sure is to run the numbers. You’ll need to account for closing costs, etc. In our case, we’d break even on the refinance if we stayed in this house one more year. Your situation might be different.
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Wow, 4.96%! That’s a good deal if the costs worked out.
Also, it’s good to hear someone reading the entire mortgage document. I can’t believe people don’t when this is going to be the largest single expenditure in most people’s lives.
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CONGRATS! We’re currently finishing up some home renovations so that our house will appraise well (we’ve got a bathroom gutted right now which would surely hurt). After we’ve finished, we are definitely going to try our hardest to refinance to a lower rate. I think we might be able to knock almost 2% off of our current rate, which will save us about $300-$400 a month!
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Hahaha “You’d have to wash a lot of baggies to save $250 a month.” TRUE!
We’re in the process of overhauling our phone/internet/cable packages for a total savings of $50/month. It’s not $250 but still more than washing out a baggie
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