It was finally too much for me to ignore. We have been paying 5.75% on our mortgage for the last 6 years. We’ve always felt that was a great rate, especially when you consider historical rates. Well, the appeal of a sub 5% loan was finally too much to keep me on the sidelines. We were able to secure a new loan at 4.875% for a 30 year fixed rate loan through our credit union.
I went back and forth on this for quite some time. On the one hand, we really didn’t want to extend our loan back out to 30 years. On the other, we know that we can pay additional on the mortgage to speed it up. That’s what we plan to do. We will take the savings each month and pay it towards the mortgage (and probably more) to keep paying it down as if we had the higher payment. Over time, this will help shorten the loan period for us.
One of the other things that played in to our decision was that the lower payment will be very helpful if we were to find ourselves unemployed. As it stands now, with both of us employed, 51% of our income is left over at the end of the month if we closely follow our budget. If you include what we are putting away each month in our 401K’s and investments, the number is much higher. This decision will help us keep our monthly expenses as low as possible.
Last week I was amazed that rates had gotten so low. As I was logging in to my credit union website I happened to notice that they were offering an APR of 4.99% last week. I didn’t act on it right away because I wasn’t sure it was something we wanted to do. As I debated the pros and cons, I finally decided it made sense. The benefits far outweigh the closing costs in a very short amount of time.
Once I decided that we were going to do it, I sent an email to a mortgage broker that happens to live in our neighborhood. I gave him the basics of what we wanted to do and asked him to send me a Good Faith Estimate (GFE). His GFE showed a fair amount of fees that I wasn’t too thrilled with. I also went through the basic process with my credit union online and downloaded the GFE for them as well. When I compared the two, I found that my credit union was about $800 cheaper. The other thing that drove me to my credit union was that my neighbor was quoting rates from Countrywide. I have to admit, I found myself having a negative taste in my mouth from all the news I’ve heard about Countrywide. In the end I decided that I wanted the convenience and peace of mind of doing business with my credit union (they service all of their loans). The $800 definitely was a factor as well.
If you have a rate that is 5.75% or higher, you may want to look in to whether refinancing would be a benefit for you or not.
Wow – I have been watching rates in our area and I have not seen anything even close to <5%. The best 30yr rate I found was 5.25% with no org fee/points. Congrats!
This is fantastic! The credit market is so tight now I am surprised that you were able to find such a great loan rate, and be able to receive it. It sounds like you have some outstanding credit. I’m looking at getting into a house. I rent and I’m single, so I haven’t really needed one. Now that I can somewhat afford a house, I’m looking into rates. I can’t find anything lower than 5% either. I don’t know if I want to tack on this additional debt, but I know that I’ll want to move into a house sooner or later, so I figured get one while their cheap. Thanks for the post!
Now I am no expert so I would like to understand why it would not be best to invest the money you’re going to save from lowering your interest rate into some sort of investment that will beat 4.875% in the long run. It should not be hard to find any type of investment that will beat that. I always thought one should pay more on their mortgage if one can’t beat the interest rate on some other investmant.
I understand that a lot of people don’t feel comfortable with carrying debt if they can get rid of it sooner rather than later, but does it really make sense in this economy, knowing that the market should bottom out soon?
Please share your reasoning on this issue.
Thanks!
Moneywise,
Yes, that is definitely a consideration. My first goal with doing the refinance is to lower the interest rate on the mortgage debt that I have.
I’m making the personal decision to pay down the debt more aggressively just because I’m not a huge fan of debt. That being said, I’m also going to be building our cash pile so that I can take advantage of buying opportunities in the market as well.
Thanks for making the point. It’s a very good one and something that everyone should consider. Debt at 4.875 isn’t that hard to beat in the market. I’ll definitely be thinking about that more as I start paying on the new mortgage.
Sub-5 with no points? I’m curious what your closing costs were and how many points you paid, if any. The lowest I can find in Boston is around 5.3% no points.
I had to pay a 1% loan origination fee (which I haven’t found too many places that don’t charge an origination fee) and then I paid .125% to buy the rate to 4.875. The APR ended up being 5.03% so I guess I wasn’t totally honest in the original post.
Regardless, the break even point for me was something like 10 months. Since we aren’t planning on moving for many years, it made financial sense.
wow, good job on finding that great rate. i should really look into the local credit unions to see what they can offer. thanks for the reminder/tip on refinancing, Hazzard.
That is excellent, I am still in the high 5s which I thought was a great deal. 4.875%, you can’t beat that..
Can you believe it? I checked today and rates have come down further at my credit union. Today they show a 4.625 rate for 30 year fixed. APR with closing costs ends up being 4.8%.
Of course I already locked in my rate. I guess I’ll just have to be happy with 4.875. Any way you slice it, it’s a good rate.
Congrats on the sub-5% refinance. At least we are getting a piece of this government spending spree, eh?
Paying down the mortgage can be treated like buying a long-term bond. Right now, a 30-year Treasury is paying much lower than 5%, so paying down isn’t necessarily bad. However, in a few years there is a reasonable chance inflation will spike and we can easily get more than 5% in a simple bank CD or something.
I refinanced my loan today. No cost loan 5.25%. Its saving me more than $120 in monthly payments.
I tried to refinance my house with a 5.99% fixed rate for 30 years as advertised boldly by the lender.
When the legal documents came, they were full of “the lender can increase rates at any time…clauses”.
I don’t know if it was just the lawyers or the lender being not straight.
Eventually I declined and we sold the house this year.
It’s a great time to refinancing your home mortgage loan at a better rate. Unfortunately not everyone is able to get the 5%