Sunday, June 19, 2011

To refinance or not to refinance... Ugh! Nevermind

Dave Ramsey says now is a great time to refinance. Trying to refinance last year was what first alerted me to the fact that we owed more on the house than it was worth. We signed the paperwork and everything, but then found out they couldn't do a mortgage because the mortgage would be over 105% of the house's value. We ended up losing $500 by trying to refinance last year because the appraisal was non-refundable. So I have to admit, I'm a little gun shy about trying again. I want to know for sure that we owe significantly less than it's worth before we make the same mistake again. Last time I checked the house was worth about $190,000 and we owe $184,000, so we should be ok.

Another issue are the fees associated with refinancing. Last year my husband was in charge of trying to refinance. He mentioned a few times that it would cost us "points". I didn't really understand what he meant by that. So I did some research on it and realized one "point" is 1% of the loan. Most of the re-financing options I've seen cost one point. Right now we owe about $184,000, so I would assume re-financing that mortgage would cost us $1,840 in fees.

Here is a video explaining points on a mortgage:

The next question is should we get a 15 or 30 year mortgage? If we got a 15 year mortgage, we could get it at a 3.75% interest rate. We are currently paying 5.75%, so it would drop by 2%. If we got a 30 year, it would be 4.625%. For the 15 year, the monthly payment would be $1,338.09. For the 30 year it would only be $946.02 per month. So that would be an extra $392.07 every month extra to pay it off in 15 years rather than 30.

We currently pay $1,133.01, so if we did a 15 year, we'd owe $205.08 more than we currently do. If we did a 30 year, we would pay $186.99 less than we currently do, but we'd also have to start over at 30 years. We are already 3.5 years into our current mortgage.

If we did the 15 year option, we would pay only about $10 more than we were used to paying when we had 2 mortgages. But we would have it paid off in 15 years rather than 26 and a half years. I kind of like that idea, but here are my concerns:

Not only was I so intent on paying down the second mortgage to get us to the point where we owed less than our house was worth, but I also wanted to owe less every month. My job in temporary, so some day I will not be employed at the place I'm working at now. Also, it's still a possibility that we will have kids. If I'm only making $13 an hour, it probably wouldn't be worth it to have the child go to day care. So if I stay at home, then we need to be able to make it on just my husband's salary. If we only had a $946.02 house payment (or $1,133.01 if we didn't do anything), it would be a lot easier to get by than if we had a $1,338.09 house payment.

Another concern is if we will be in this house long enough to justify refinancing the mortgage. I don't know how long we'll be living at our current home since my husband may find a job in a different city. If we are going to pay $1,840 that we'll never see again, we have to make sure that is worth it as well.

... And nevermind. I just typed all this out and thought I'd get an up-to-date quote from zillow for the numbers in the first paragraph and now it's only appraised at $182,300 so we now still owe more than our house is worth again!  I guess I'll have to finish this post another day :(

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