Guest post by Megan
“Will I ever pay off my mortgage?”
This question has taunted every mortgage holder in America at one point in time or another. My husband and I have been blessed to have a decent amount of equity in our home, and yet the thought of shelling out hundreds of dollars a month for another 28 years has still sent quivers through me a time or two — at least until recently.
I had purchased a house in 2007 before my husband and I were married. I grew up flipping houses (buying, fixing and then reselling) with my family. This instilled in me a desire to try my hand at one myself. I thought it would be an excellent way to get ahead and that I may as well start knocking out mortgage payments sooner rather than later. So with a 30-year, $80,000.00 mortgage at a 7% interest rate, I started doing just that.
Thanks to the help of friends and family, I completed the necessary renovations on the home I purchased and then proceeded to rent out my house while I continued living at home. Even after getting married a year later, my husband and I decided that, for the time, we would continue to rent the house I owned out. For us, it made more sense to let someone else pay our mortgage while we lived in an inexpensive apartment.
The arrangement was working nicely, but it still seemed as though we could be doing more to manage the finances that were tied up in our rental investment. We started looking into refinancing options and were very surprised by the numbers we discovered.
What does it mean to refinance?
Simply put, refinancing is paying off your current loan with a new one to reduce the term of the loan. This in turn saves you a good deal in mortgage interest. We were so excited to find this silver lining in our current economic cloud!
How Much We Saved By Refinancing:
Before Refinancing: After Refinancing:
$80,000.00 loan $80,000.00 loan
30-Year Note 15-Year Note
7% Interest ($112,168.12 ) 4.25% Interest ($28,330.41 )
$811.00 Monthly Payment $846.00 Monthly PaymentNote: In the process of refinancing, my husband and I recently decided to move from our apartment into our rental, as residential loans offer lower rates than investment loans.
As you can see, our return on two months’ worth of paperwork has been $83,837.71 in interest savings and 15 years off the life of our loan!
I was, and am still floored at the savings in interest alone. You may have noticed our monthly payment increased by $35. For us, this is an overage my husband and I are willing to make up in other areas of our budget. We believe it will be worth every penny in the long run!
If you are interested in pursuing the option of refinancing your home, here are a few tips to get you started:
1) Calculate Your Current Mortgage Information
Before you start shopping for a better interest rate, you’ll want to know what percentage you’re trying to beat. Pull out your latest mortgage statement and input the information into Dave Ramsey’s Mortgage Calculator. This is my favorite tool for tracking our mortgage, as it is very simple to use.
With it, you can see how a lower interest rate can affect your loan, or you can calculate how much you would save by simply paying a little extra on your monthly payment. This tool can even help you calculate how much you could save by simply cutting a few restaurant visits and coffee stops each month!
2) Start Shopping For Rates
It is a good idea to start with the company who currently holds your loan. Although this was not the case in our situation, often your mortgage holder will offer you a better rate so they may keep your loan, thus keeping your business from moving to their competitors.
Once you have their rate quote, ask for rate and payment quotes from one or two additional banks before making a decision. Don’t be afraid to let each company know what the others are offering you as they will want to know what would be necessary to acquire your business.
3) Recalculate Your Proposed Refinance Information
Now calculate your proposed rate, payment and loan term information in the Mortgage Calculator to see if refinancing will incur a savings for you and your family. If it does…
4) Act Fast!
Quickly contact the company that gave you the best rate quote. Although interest rates may be low now, there is no guarantee they will stay that way in our ever-fluctuating economy. In fact, we took our time during a certain portion of our refinance, during which the rates jumped on us by 0.75%. Believe it or not, this “little” jump cost us a savings of nearly $5,000.
It is likely that few of you will have the exact scenario we had, but if this information helps you save even a few thousand dollars and a couple years from the life of your loan, I wish you Godspeed!
Megan is a recently married, working young woman who desires to be a good steward of the earthly possessions God has blessed her and her husband with.
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Great article, but please bear in mind that closing costs and transaction fees vary greatly from area to area. Here in the DC-metro area, closing costs are exorbitantly high and should be factored into the decision as to whether it makes sense to refi or not.
Thank you so much for this post, we are buying our house this year and we realised for what we are paying in rent now we can buy a house with a 15 year not and pay it off so much quicker. Plus our plan is to pay off in ten years or less.
where do you live that you can get a whole house for $80,000? We could buy a house like that for cash! Even fixer uppers around here are a quarter of a million dollars.
Has anyone ever took control over their escrow account (for property taxes & homeowner’s insurance) from your mortgage provider?
Or, has anyone ever “pre-funded” their escrow account with your mortgage provider so the normal escrow amount you pay monthly would instead be applied to an additional principal payment?
Thanks!
we pay our own property taxes and homeowner’s insurance. our mortgage payment is principal and interest only. i’m not sure if you would need to have a certain amount of equity in your home for your bank/credit union to allow you to escrow your own taxes and insurance or not….
We tried to refinance last Fall — what a nightmare! We ended up not doing it because the new monthly payment vs. the closing costs wasn’t worth it. It would have taken 8 years to recoup the closing costs. The original “good faith” estimate had a lower new monthly payment and minimal closing costs. It also took 3 MONTHS to get to the final papers and then to find out the actual numbers… it was very disappointing. But it sounds like a lot of people have been able to take advantage of the great interest rates right now! Thankfully, we’re only about a point higher so I’m not too bummed out!
I saw some posts that made me wonder…
Please remember that paying off your mortgage early means that you own your home and that you won’t be tied to a mortgage payment any longer. However, you will still need to pay your property taxes and homeowner’s insurance annually. Save $ monthly for these two budget items so you will be adequately prepared when the bill payment time comes. 🙂
We have been in our home for only a year and a half. Is that too soon to check into refinancing?
No, it’s not Jen. We were in our home for about 15 months when we looked in to it. It ultimately turned out not to work for us (the numbers didn’t jive), but I’d definitely look in to it.
I JUST refinanced my home. I read this post this morning and called my mortgage company. I now have a 15 year loan as opposed to a 30, have an obviously lower interest rate, and will save approximately $45,000+ in interest.
I can’t thank you enough for the post. For the inspiration to act quickly. For the suggestion to call my mortagage company and just ask for a better rate and shorter term. I just scratched EIGHT YEARS of mortgage payments off my “Things to Toss and Turn about ALL NIGHT LONG” list. That is PRICELESS.
THANK YOU.
Yay! So glad to hear this!
I am SO HAPPY and relieved..
I can’t even begin to express the gratitude that I have to you. And Megan.
No words even cover it…..
I am so excited for you! Thanks for sharing!
My husband and I have looked into refinancing now more than once on our 2005 home purchase. Unfortunately, thanks to the housing market, our $150,000 home (2 mortgages–80% and 20%) is now only worth about $106,000. So no one is willing to refinance it. We had to move for our jobs, so we rented out the house in order to continue paying for our mortgage. They have also been unwilling to refinance due to the fact that it is a rental.
Has anyone else had these kinds of problems with this housing market? Any solutions?
Jessica – Sorry to hear about your situation. It really depends on what part of the country (US) you are in. Some areas have been hit much, much harder than others. I am in central Texas and we have seen some impact but not like other areas. The area that I live in is very attractive to many folks so thankfully, the market has remained somewhat strong.
We live in Vegas and our housing market is the worst in the nation. Almost everyone I know has had this issue — you are most definitely not alone! Unfortunately, it will be next to impossible to refinance, but you could ask about a modification. I’ve heard awful stories about those, too, but it always worth asking!
Yes. We are having this problem. We have no way of refinancing because our townhouse (we live in the DC metro area which is very expensive) has gone DOWN by $130,000. We have talked to a few people and since our loan isn’t owned by Fannie Mae or Freddie Mac were basically told it was never gonna happen! So, I feel your pain!
We’re getting ready to refi in a few days. No costs at all. It’s our current lender. Down to 5.25, which is not as good as some of you have, but still will save us a lot of interest. It is still a 30 year, which we weren’t crazy about psychologically speaking, but we will just keep paying our same payments and be done years sooner (we were already paying more).
By the time I thought about refinancing my mortgage, I would have paid more in costs and fees than I could have saved in interest. So I’ve been stuck with my original 7.5% interest rate. Luckily I’ve been sending in extra principle payments for most of the 16 years I’ve had my house and I’ll pay off my mortgage within the next 2 years, over 10 years early. My monthly payments have always been under $600 so paying $200 extra per month hasnt been much of a sacrifice.
Rates change every few hours so if you see a great rate call and get locked in right away. You can call in the morning and that rate could be gone by afternoon. We have found the best rates at the credit unions in town. We bought our house in Feb. 08 and got a 15 yr fixed at 4.5%. In Dec ’10 we refinanced and got a 15 yr fixed at 3.25%! Our mortgage broker told us only a handful of his clients were able to lock in at that crazy low rate. I’m having a hard time talking myself into paying it off early with such a low rate.
While I agree in general with this topic, one must keep in mind that every home mortgage situation is different. The piece of info that I would like to have seen was the amount of closing costs to do the refinancing. From a consumer standpoint, it doesn’t make sense why we have to pay closing costs to just get a lower interest rate…all that work was done when you bought your home and nothing has changed since so why redo all that closing work…of course, the title companies and everyone else involved would disagree since they want to make their money. I looked at doing a refi and it just didn’t make sense to dish out those closing costs $’s just to save some interest $’s. Instead (this is rare and STRONG discipline must come into play), one can get a 30 year mortgage and pay if off in 15 years. This is much easier to do when one is not suffocating with mounds of debt. No one should ever be required to pay a fee to pay additional $’s towards their loan principal. The other thing to remember is to be wise when it comes to home buying. Don’t get so tied up into a large mortgage payment that you won’t be able to breathe. Thankfully, when my hubby & I bought our 1st home (and we are still in it), we based it on just one salary, not two. Sure enough, I was laid off one month after 9/11 and with me always bringing in a high technology salary, we planned smartly so we have never suffocated. Can I use more space? With 3 kiddos, definitely but that is what remodeling will take care of. Do I want a larger mortgage payment? Nope! I would rather have a manageable house and be able to breathe and enjoy the life and not be tied to “that” payment. Contentment is the key. Hope this helps! 🙂
I completely agree… make sure you look at what the closing costs are and how that plays in to your budget. I looked into a refi just last week and they are actually offering money towards closing in most scenarios. Also because of the Making Home Affordable Act, many people can get a refi without having to pay for an appraisal. It is pretty much a no-brainer right now if this applies to you.
I appreciate the author’s post and everyone’s comments, however after reading those comments it would be interesting to know how property values compare to income levels for each person commenting. I live in an area in which property levels are very, very high, relative to income levels which means that extra mortgage payments or shorter mortgage terms are difficult for most. For those who have income levels that allow themselves to pay off mortgages early, or make extra payments, consider yourselves lucky!
Katharine, I agree with you. I live in New Jersey (I think it’s ranked #1 in the nation for the highest property taxes) and although it will probably take us a little longer than most people to pay off the mortgage, we make it a point to pay a little something towards the principal. We refinanced to a 15 year ($285 more a month than we were paying on a 30 year mortgage) and so far we owe on the house what we would have owed on our June 1st , 2011 payment.
We just refinanced our home last month. Even though we missed slightly lower rates at the end of last summer, we weren’t sure if we were ready to stay in this house for 5 more years at least. Now we are more certain and it was worth waiting and crunching the numbers. I haven’t seen anyone mention the 20 year mortgage option. We bought our house in 2006 with a 30-year, 6.65% mortgage (we had already prepaid it down to 22 years). We refinanced to a 20-year term, not being sure what gas and other rising costs would do to our budget over the next years. The 20-year term still saved us 2% on our interest rate, and still saved us about $80/month, so we added most of that in as more prepayment on our loan. Yet, it wasn’t as big of a commitment as a 15-year in this uncertain economy (and the hopes of adding more kids)! Our bank doesn’t list the 20 year as a normal rate, but most banks offer it, if you ask, and the rate is often closer to the 15-year, and lower than the 30 year rate.
Good point Bethany. I am glad you found something that works for you!
We’re actually in the process of refinancing right now. Our rate will drop from 5.75 to 3.25!! We’re rolling the cost of closing into the loan so it will take a couple years to break even, but it will be worth it! It’s a biweeky mortgage (no fees for the bi-weekly payments either). Our long term goal is to pay off all our debt in less than 10 yrs.
That is quite the jump! How exciting!
For all of your posts that are trying to pay off your mortgage quicker and with decreased overall interest, are these homes you are planning to stay in for many years? My husband and I own a condo that we hopefully will be able to sell in 2 to 5 years to move into a house and grow a family (Lord willing 🙂 )… Therefore, for people in our situations, in the long run isn’t it better to not put extra money/payments into the mortgage and put it into savings/paying off student loans? I guess I don’t see the benefit of paying off the loan as quick as possible if you plan to sell within a few years. Any advice on the matter would be lovely 🙂
For most people that plan to sell soon, your assumptions are true.
Caitlin –
Taking care of the initial Baby Steps…
Baby Step #2: Paying off all your debt (which includes your student loans but not your mortgage);
Baby Step #3: Having a fully funded emergency (3-6 months of expenses in savings);
Baby Step #4: Invest 15% of your household income in Roth IRAs and pre-tax retirement plans
is MUCH more important than paying off the mortgage earlier. Paying off the mortgage early will come later.
While I agree that it made a lot of sense in the author’s case, some expenses were left out including fees for the new loan, an appraisal, possible fees for a home inspection, attorney fees, etc. It can cost $2,000+ to refinance.
Excellent article–thank you! My husband and I have lived in our home for nine years and have refinanced either twice or three times (I forget which–he handles our finances and does an excellent job, too, I must say). We have managed to turn an initial 30-year mortgage into a mortgage of less than 20 years, while increasing our monthly payment by very little. This strategy, plus the other strategy we employed, which was to buy a nice, but much cheaper house than the lenders told us we could afford, has helped us amass a very nice retirement nest egg.
I live in an area where most of us have higher mortgages than our homes are now worth – so we didn’t qualify for the requirement of 20% equity in the current value of the home necessary for a refi. BUT – our mortgage provider allowed us to get a “rate adjustment” – paying just 1% of our current mortgage in exchange for one percentage point lower. We ended up saving close to $450 a month, after breaking even after 9 months (e.g. weighing the 1% cost against our savings) I highly recommend talking to your current mortgage provider about this!
Thank you for sharing this, Stephanie. Some lenders require as little as 5 percent equity to refinance, but in today’s market, many people do not have that. I’m going to look into rate adjustment options.
I am in a similar situation of owning a house that I used to live in and now rent out. I have considered refinancing, but my question for Megan is, when you first bought the house was it a personal property loan (rather than investment property), and since it doesn’t sound like you were living in the house a the time of the refi, did you then have to do it as an investment property loan? I thought those rates tended to be higher, but 4.25 sounds great!
I actually rented my house out shortly after renovations were completed, then continued to rent it for approx. 3 years. It wasn’t until just a few months ago that my husband and I moved into it and refinanced with a residential loan. I can see where the confusion was in the post. Sorry I didn’t make that more clear. I will try to do better in the future! 🙂
With that said though, you are absolutely right! Investment property loans do tend to have higher rates than residential loans do. So although I am not certain whether it would benefit your situation to refinance, it may at least be worth checking into so you have the peace of mind.
I really enjoyed today’s guest post and I’m sure many of us should seriously consider doing this to save on interest. I would like to add that in some cases the cost of refinancing should be factored in to the overall benefits of refinancing. This is what they call the break even period. By calculating how long it will take to pay off the refinancing costs, you can determine whether you will live in your home long enough to really save money from having the new and lower rate.
We refinanced last fall, and it took us awhile to really figure out our break even point. At first, we calculated how long it would take to pay off the $3000 of refinancing fees. Then, we realized later that the true break even point is when the principal balance of the new loan and the principal balance of the old loan are equivalent (i.e. when we would have owed $80,000 on the old loan and we we will owe $80,000 on the new loan). So, it was a bit longer than we initially expected.
I think it’s important to note that when you do refinance, the clock starts ticking all over again, so to speak. If you have an existing 30 year mortgage and then refi with another 30 year, your payments will go down (maybe quite a bit) but the downside is that you’ll be paying almost all interest for the first few years again. It’s really important to do that math and make sure that you’re saving in the long run, not just getting a lower payment.
Megan wrote “Simply put, refinancing is paying off your current loan with a new one to reduce the term of the loan. ” This is only true if you’re going to a shorter term. Usually people just refi with the same term as the existing mortgage and therefore end up extending the amount of time they’re paying on their mortgage.
We are currently calculating whether it will be better for us to pay off our mortgage in 8 years with extra payments or put some of that money toward retirement and savings. Dave Ramsey says there are lots of seniors with paid off homes (nice!) but who don’t have any savings and are can’t pay their bills because they didn’t save and invest enough (not good!).
Exactly! This is why FPU teaches paying off the mortgage is Baby Step #6 (of 7) and a fully funded emergency fund of 3-6 months is Baby Step #3 and Retirement Savings is Baby Step #4. There is significance in the baby step order. 🙂
We’ve refinanced our mortgage once already, but we still did a 30 yr loan because the difference in monthly payments was quite a bit more. We looked into refinancing again last year, but it wasn’t worth it when you factor in the closing costs. We make an extra house payment (worth of principal) every year so I think that drops our 30 yr down to 22 yrs. I wish we had a 15 yr loan, but I decided to quit my job and stay home with the kids and my husband is self-employed so his income is not always reliable so I like having the lowest payment possible in case something comes up and we’re unable to pay extra some month. I always make up the difference when we have extra money though.
I haven’t seen any responses so far mentioning “Loan Modification”. I previously thought that option was only available for people who were already struggling to make payments, possibly even in default. In these situations a “Modification” is the bank’s attempt to avoid foreclosure by doing a number of helpful things such as lowering the interest rate, lowering the principle owed, and some other things I’m not sure about. In our situation, this is not the case. We have NEVER missed a single payment and, in fact, put extra toward the principle each month. However, when I contacted my bank several months ago to inquire about refinancing our 15yr. @ 5.25% loan (we had already refinanced a few years ago), they told me we qualified to reduce our interest rate to 4.125% for the remaining 12 years on our current loan. A simple modification fee of $750, plus a reappraisal was all that was needed. I remember how stressful our reappraisal was a few years ago, so I jumped at this opportunity! So, moral of the story, don’t assume you don’t qualify for a modification instead of a reappraisal. It doesn’t hurt to ask.
Caution on Loan Modification: Beware- there are many scams out there. I work as a Notary Closing Agent- I’m the one that helps consumers sign their refinance papers for banks. A few years ago I was helping with a loan modification for a company based in Nevada. I learned that it was a scam. They were asking for several months of payment up front and the borrower was not signing a new Settlement Statement, Note, Mortgage or Truth-In-Lending Statement documents. These are legal documents for all states.
Make sure you do your research and that the company is legit.
We refinanced our home last year and the interest savings was equal to over $30k! We decided to go the same route as a few others have commented thus far by sticking with the 30-year, no pre-payment penalty loan and are on track to paying it off in 15 years! This gives me necessary peace of mind. Then as our budget changes we can adjust our payments to be more aggressive or conservative as we feel comfortable.
Crystal, I want to say thanks for choosing Megan’s guest post this week! After reading the post and some of the comments I think the best take-away is that it is far more beneficial to research your refinancing options then just letting the potential opportunity pass you by.
I am so glad we took out a 15 yr loan instead of a 30 yr loan! We don’t have to worry about the hassel of refinancing and I know that we will pay off the loan in at least 15 years if not more (5 is our goal!). We got a great rate (4.35%), so I am happy about that. We could have taken out a 30 yr loan and paid much much less each month, but to me it is so worth it to havea 15 yr!
This is a great post! We’re in the process of looking for and purchasing our first home. The info in this post was great for us to take into consideration as we move forward. We just got pre-approved over the weekend and already our heads are spinning with all the paperwork and fees and… probably other things we’re going to find out about.
It’s great to be reminded that it’s best to shop around and find the best deal. We too are hoping to pay a little more monthly to save in the long run. We shall see! 🙂
Yes the paperwork is crazy!!! We are in the process of buying our own home and hope to be done with all the paperwork on april 8th!!
We refinanced to a 15-year mortgage back in 2002. Like the example, we ended up paying slightly more per month, but we’ll have paid off the mortgage by 2017, even if we do nothing but pay the regular principal and interest with nothing extra. Can’t wait for the mortgage to be paid off!
One of the things we are doing is to throw anything extra each month into our mortgage. Some months its a little and some months its alot. We are hoping to pay off our 15 yr mortgage that we got in Oct 2010 within 5 years.
We are also hoping to pay off our home in 10 years vs. 30 years, with an expected savings on interest of over $175,000. 5 years to go! My husband and I are also maxing out our Roths and hope to increase our retirement savings as soon as the house is paid off. (In the financial world, I have been told I SHOULD NOT pay off my house quickly, but should be putting more in our retirement savings. But the savings of that much interest seems like a no-brainer to me, especially with the amount of money we’ve lost over the years in the stock market.)
We did this too. We went from a 30 yr at 5.875 to a 15 yr 3.75
We pay about $30 more a month but knocked off years and have more than saved our closing costs.
I think we figured we saved $24,000 in interests just by refinancing.
Megan,
This is exceptional the way you explain this to others. However, do not forget to go one more step since you and your husband have paid 2 years at the 7 percent then you have paid some of that interest in fact $32,048 worth of that interest. There for you do not get to save the full Eighty plus, rather you save $51,789. Remember all the steps so that others can fully understand what they are doing. So many folks do not get the confusing mortgage papers.
I personally had a friend who was divorced but the ex wifes name was still on the home. He kept struggling to pay off the home when he finally did he learned what I was telling him all along. He could only sell the home if he could get the exwife to sign off on the home and when he could not he had to share all of those hard earned dollars he had placed in the home. It would have been far better for him to save his money and sell the home unpaid for. Then she would owe half to make the sale and he would owe half to make the sale if he offered to pay her half to get her to sign the papers he could keep all of the profit from the sale. You see it is very important to understand how numbers work!
Also for all of us ladies who are stay at home Mom’s make certain something is going away for your retirement . If it is not change what your doing trust me you will be 60 before you know it! Take it from a lady who is over that today and wonders how it happened so fast !
Best of luck and love in life to all !
We recently refinanced too. We switched from a 30yr loan to a 15yr, and without increasing our monthly payments that much we now have the joy of watching our mortgage actually drastically decrease! So much fun! I know, I’m uber nerd, but it is a thrill to see what God can do when we trust him with our finances!
God works in mysterious ways. Through your post, God reminded me that I should trust Him with our finances.
We refinanced when our bank was offering a no closing cost option. We went from 30 year to 15 year mortgage. It only increased our payments $15 dollars a month. It was totally worth it for our situation.
We refinanced a year or two ago, and are so glad we did! We took a percentage point off our home loan, chose to stay in a 30-year mortgage, but have plans to pay it off way sooner (5 years is our goal). I was so glad that a friend suggested I look into it! Another point my friend made was to make your phone calls to banks/lending institutions on the same day to really be able to compare rates. Rates change daily, so doing a ton of calls on one day gives you a real apples-apples comparison (though it definitely is a pain!).
Cool! Of course, Megan’s situation is pretty unique since she was paying higher non-residential interest before. When we refinanced to 4.75%, it was only a one-point drop from our previous rate and we were not able to switch to a 15-year mortgage without a serious uptick in payments.
Another thing to keep in mind is that if you get a loan with no prepayment penalty, you can pay your mortgage off earlier without being obligated to make the higher payments each month. This can give you peace of mind if you’re worried about a job loss that might make it hard or impossible to meet the higher payment.
We refinanced almost ten years ago (from a 30 year to a 15 year) and have never regretted it. We looked into doing it again when the rates dropped significantly last year, but after doing the math, it wasn’t worth it for us after paying the closing costs. We took the money we would have paid toward closing costs and paid it toward the principle and came out ahead.
Hi Becky,
My husband and I refi’d recently and it was because the mortgage company came to US. They contacted us w/ 4.65% w/ absolutely no closing costs. It really was hastle free. Lenders know that there are many good rates out there and since we have been good customers w/ excellent credit ratings, they don’t want to lose good customers like that…it might behoove you to contact your present lender and ask what they are willing to do for you. You never know!!
We bought our house in 2005 and refinanced in 2009 consolidating two loans into one with a lower interest rate (we had a mortgage and a home equity to avoid paying PMI since we only put 10% down). The refinancing process was a nightmare because of the incompetency of our bank officer and took six months (during which we had our second child). Since the bank appraiser lowballed the value of our house we ended up paying $6-7K in cash to avoid PMI with the new loan. We didn’t mind putting money toward our mortgage but it was stressful because of how long the process took and we were trying to buy a new (to us) car during this time as well.
In spite of the hassle and stress the refi was so worth it. We still have a 30 year mortgage but our payment is so much lower that by adding only $50 to what we were paying before the refi we will pay off the house in only 15 years (when our older son goes to college). We looked into shorter mortgages, like the 10 year fixed my husband’s employer’s credit union offered, but ultimately decided against them. Our reasoning was that we didn’t want to be locked into a higher payment in case of a disruption in our income. I’m a musician so my income has drastically dropped the past few years and at the time of our refi my husband had health problems we were afraid could render him unable to work. In our situation we felt like the choice to pay that extra money every month was better than being reuired to do so. That said, it comes directly out of our account so we’re not tempted to use it for something else on a monthly basis.
Unfortunately, the value of our house is dropping so we couldn’t move right now if we wanted (although we’re not upside down, thankfully) but that’s another story entirely. We live in Milwaukee, WI and I suspect the drop has to do with the budget drama in our state and the school district we’re in. Oh well. We weren’t planning on moving anyway.
We just closed on a 15-year refinance. And with an additional $400 extra every month to our regular mortgage payment (we were already sending $300 extra each month), we should pay off our mortgage in 10 years! Just as our oldest enters college.
Mary Ellen
The Working Home Keeper
We recently purchased another home after downsizing from our previous larger one. (A decision which many of our family members thought was absolutely crazy.)
Although we still have a “traditional” 30 year mortgage, we’ve made plans to pay it off in the next 10 years (or less). Our real goal is 5. We could have afforded the payments for a 15 year mortgage, but it would have made things difficult for us if I lost my job, which I was definitely in danger of doing.
Every month we add an additional $250 onto our mortgage payment. 1/2 of our tax return goes directly to the mortgage and anything above and beyond a certain amount in our savings account gets paid toward the balance every quarter. That way we aren’t beggaring ourselves and if we have a really unexpected emergency, we can scale back our contributions. Also, since my husband is blessed to work a lot of overtime lately, we’ve been taking all the overtime money and throwing that at the balance too.
I don’t know if we’ll make our five year goal, but even if we don’t, we’ll still be a lot better off farther down the road.
What I found surprising were the number of people who advised us not to put as much of our old home’s equity (we transferred 100%) into the new house and that think we’re crazy for paying off the mortgage early.
We originally refinanced our home for 30 years…after being here for a few years we refinanced for 15. Less than 10 years after buying our home, we owned it free and clear. I was then able to leave my job that was causing me so much stress (we had put my entire pay check to extra payments while living on my husbands check and him making the house payment).
People think we’re crazy but we couldn’t be happier. With him being a federal employee, we aren’t as stressed out by the possibility of a gov’t shut down as others and no matter what happens in the future, they can’t take our house away from us.
It’s awesome that you were able to pay your house off so quickly.
But, technically, if you don’t pay your property taxes, the town/city can take your home.
We live in an area of higher property taxes. A cheaper home like ours will run $4-5k/year in taxes…we know of single family homes with $10k+ in yearly taxes.
We see several sheriff sales a year in our towship from people losing their homes over property taxes.
We have incredibly low taxes…we have 3 lots for a total lot size of 120 x 140 ft… we pay about $1300/year in taxes.
If need be, we could live off our savings for close to a year. We’re working on making that 2 years by the end of the year but probably be more like 18 months since we are redoing our garage and driveway this year.
That’s so great this worked out well for you! Unfortunately refinancing doesn’t always help out 🙁 My husband and I have paid off over 1/3 of our mortgage and decided to refinance when we found out I was pregnant. Since we owed significantly less on our house the only interest rates we could get were higher than the one we got when we originally purchased our home. The more research I did, I found out that the less the amount of the mortgage the higher rate of interest you will be charged. Ridiculous, but true.