Crazy like a fox! Yes, just one year after closing on my original purchase, I’ve refinanced my mortgage twice. It cost me nothing but a little bit of time and paper, but the combined refinances will save us $160 a month on the mortgage. Over ten years, that’s a whopping $15,000!
How I Got Two No-Cost Refis in Six Months
I have a mortgage broker friend. He emailed me about four months after we closed on our first loan to let me know he could get me a free refi that would drop our rate by a quarter point. At the time, this was a fantastic deal.
We sent him our bank statements, got the appraisal, and then he sent a notary to our house to sign the papers. We closed right before Christmas.
Fast forward five months. After rising slightly, interest rates started falling drastically. My mortgage broker friend emailed again, with another free refi offer. This time he could get us down to 5% even. I confirmed that we could refi while my husband was on disability. He checked and said yes, so we started the process again.
Fortunately, the answer turned out to be no. We were midway through the process when we had to call a halt. I say fortunately, because rates continued to fall. About six weeks later, my husband was back to work full time and we had a full-time paystub to send over. The appraisal was still good, and in fact our loan paperwork was still in the system. Even better, we could now get a rate of 4.875. We closed within ten days of restarting the process.
What about the Extra Year of Interest?
Both times we refinanced into new 30 year mortgages. We didn’t add to our loan balances, so the equity we’ve accrued over the past year is still ours. We did essentially “lose” that extra year of interest we paid, however it’s not a big concern for me for three reasons:
First, we don’t plan to stay in the house for 30 years. I imagine we’ll be here about ten. It doesn’t make a difference at that point whether we’re at year nine of our loan or year ten. The loan balance is the same.
Second, if we did somehow stay in the house for more than ten years, by that point we should be able to make catch up payments. We’d have $24,249 in interest to make up, but it’s still doable if we spread it out over a couple of years.
Third, over thirty years, the interest savings is $25,640, so even if we stayed thirty years and never made catch-up payments, we’d still save $1,400 in interest.
Why Not Pay Costs?
Both times we could have paid the closing costs to get the rate down another 1/8 of a point. We opted not to because the additional savings weren’t significant enough to save us a big chunk of change. We’d rather keep that money in our pockets, thank you!
Why Not Wait?
We could have waited a little longer to see if rates fell further, but I also need to buy a new car. It looks like I’ll be buying it in the next two weeks. I wanted that refi done before I started applying for car loans.
So now you know my story. Tomorrow I’ll tell you how to get a free refi of your own.