My sales director and I had lunch today with one of our great media reps. She’s in the process of refinancing her 30-year mortgage down to a 15-year loan, lowering her current 6% rate down to 5%. Her payment will actually increase about $200 per month, and her closing costs are $6,000. She asked if she should go ahead with this loan.
We talked her out of it for three main reasons:
1. There’s not a lot of difference in the interest rate.
2. The cost of $6,000 to refinance with her current lender seems rather high. There didn’t seem to be any advantage to sticking with her current mortgage company (a national bank) for this new loan.
3. If she sells her home in the next two – three years, she won’t have a chance to recoup those $6,000 in fees.
Here’s what we recommended: Keep the current mortgage with the 6% interest rate. Pay an additional $200 or more per month with the current mortgage payment (write a separate check) and designate the funds to principal only. It also helps if you can get your payment in a few days before the 1st of each month.
Rumor has it that if you make one extra principal and interest payment per year from the start of a 30-year loan, you’ll pay off your mortgage in 17 – 19 years. Here’s an example: If your monthly P&I is $800, send $80 extra in every month to your lender. Over 10 months, you’ve made one extra house payment. That doesn’t lock you into the higher payment of a 15-year loan, and when you don’t have the extra funds, say around the holidays, you’re not required to pay extra.
Keep your money, girlfriend. You’re in a good position already with your current mortgage.
Jan Sperry Astani
Marketing Director
Home Creations
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Jan Sperry Astani
