With interest rates hitting all time lows its once again to look at refinancing your home mortgage. Only this time with a different twist.
When you buy a home you have to accept the interest rates at the time of purchase. It is discouraging to know that you are likely to never get the absolute lowest rate when purchasing. Fortunately in this multi decade long march towards lower rates, the have been many opportunities to lower your rate.
It is once again time to consider refinancing. Only this time for me there is a twist. This time I will not be taking any money out to build or improve. Nor will I be refinancing to lower my payment. Instead, I will be refinancing to buy myself time and future freedom. I will be refinancing to shorten duration of my loan, taking the 23+ years left on my loan and shortening it to 15 years. There are many great quotes about time, but certainly we all agree that it is one of our most precious assets.
When most people refinance, they do so to get a lower payment. This lower payment hopefully comes mostly as a result of a lower interest rate, which is free money. However, most times one refinances, the term is reset back to 30 years. A lower payment simply as a result of resetting the term is of no value at all, unless you are very young and desperately lower your payments.
The other option is a 15 year mortgage. Currently Wells Fargo is showing rates for 30 year loans under $765,500 to be at 3.625% and 3.0% for a 15 year loan. My current mortgage is 3.75% so there would be no value in refinancing back into a 30 year. One eight of a point in interest is not enough difference. But what about that tasty 3.0%. This is a savings of .75%. Plus I have a second which has a higher interest rate, so my effective blended rate is a little above 4.0%.
If I am saving 1% on the money I borrow that’s $1,000 per every $100,000 borrowed. For me that will be about a $5,000 to $6,000 savings every year. Now, the small downside is that my mortgage payment will go up by about $600 per month, but the loan will be paid off over 8 years ahead of schedule. When you are 30 years old, $600 in your pocket may be more valuable than time. But as a tail end baby boomer, the prospect of no mortgage heading into retirement years seems like the right move. In speaking to several lenders, I am not the only one who thinks this way.
To qualify for these low rates you will need to have enough equity in your home and a high FICO score. If you have any question about your current home valuation and resulting LTV (Loan to Value), please feel free to give me a buzz and I can run some quick numbers for you Free of Charge.