About a month ago, we went to a house warming at our friend's new home. We went expecting to have a good time, but we ended up coming away with much more than a fun night out.
While we were there, we were talking to a friend of the couple, who happens to be a realtor. Somehow we got on the topic of mortgages and he mentioned how low rates were. This wasn't something on our radar at all up to this point. We got a good rate when we purchased. We knew it's gone lower since then, but we didn't realize how low. We just bought our house less than two years ago, so looking at rates wasn't something we thought to look into. However, the next Monday, I decided to peak and see how good they actually were. We learned a 30 year loan is one percent lower than our current rate. This gave us something to think about. A lot to think about actually.
Researching the pros and cons of re-financing is the biggest home project we've taken on since the actual purchase of our home. It involved a lot of research and looking into the future. We had to think about:
Can we afford to re-finance? (there are lots of up front fees)
What loan providers would we consider using? Stay with our current loan provider, or look elsewhere?
What's better in our situation, a fixed rate or variable?
What is better, a 15 year loan, 20 year loan, or 30?
Are points a good option?
Could we afford to pay points?
If we could afford it, is it better to pay points or pay down some of the principal?
What loan gives the best monthly payments in our situation? (this gets answered by looking at the up front costs vs. monthly costs of the different types of loans and how much paid in points)
How long do we plan to live here?
Does it make sense? Will the cost to refinance be worth the savings in the long run?
Most of these questions can be figured out using online calculators to see what makes the most sense. Deciding how long we want to live in our current home was the hardest question. It was also the most important in deciding if the re-finance would be worth it at all. Because of the up-front costs, refinancing doesn't always make sense. If we only plan to stay for a couple of years, we would essentially be throwing money out the window. Paying points especialy is only worth it if we plan to stay longer term.
We used this calculator to do a comparison between 15, 20 and 30 year loans. It's incredible to see how much you can save by moving to a shorter term loan. The down side is the monthly payment can go up significantly. We could also see what the payments would be based on how many points we spent, if any. After putting in our information, points and the rates we were considering, we were able to see the approximate monthly payment and the savings potential over the life of the loan.
We finally decided what was right for us and we closed a couple weeks ago! It was pretty stressful, but it ended up being worth it. Looks like we'll be sticking around this little nest for awhile.
Have recent rates enticed you to consider buying a home or refinance? What resources did you use to make the decision?