Taking Advantage of Lower Mortgage Rates

Photo credit: danzo08 (loved this toy!)

Five years ago this June we purchased a new home in Savannah, GA. We had just moved to town and at the height of the real estate boom, locked in a decent mortgage rate of 6.25%.

Fast forward through the economic downfall and the real estate crash.

In January 2010, we refinanced our mortgage at 5.0% in a fixed 30 year mortgage.  It made us so happy to save about $156/month. Yippee!  The closing costs were not that bad and we found that with that $156/month savings, we would recoup the closing costs in 19 months. Less than two years?  Yes...let's do it!

Guess what?  Mortgages are even LOWER now.

So guess what we did?

On Tuesday night, we closed on a refi at 3.875%.  That's going to save us another $180/month.  Closing costs?  We'll pay for them in 20 months.

So there is no plan to refinance again once we've made up the closing costs.  Otherwise that would be a terribly vicious cycle.  But honestly, based on the current laws, the mortgage rate can NOT get much lower for a fixed rate loan.  So we're very pleased to be locked in where we are.

Could we get a lower interest rate with an ARM (adjustable rate mortgage)?  Sure.  In fact, we played with that idea. But the problem has already been stated.  It can't get much lower. In fact, I'd personally be surprised if it stays this low much longer (although I'm certainly no expert).  We could also go with a shorter term loan and come out better.

But right now?  We're in a load of debt and the focus is keeping our expenses as low as possible so we can get rid of this debt!  Then we will boost our emergency fund.  THEN we will start doubling up on payments to our mortgage and knock it out.

Immediate future?

We'll skip the first month's payment (April) because that's what you do with a refinance. The money we save there will be sent to good old Chase Mastercard. Sure, we could knock time off the mortgage by doubling up on May's payment, but the goal again is debt depletion.

We will get back money from our escrow account.  What is that for?  It will be sent to our timeshare company to buy our way out. Yep - that's what we're going to have to do and frankly, it sucks, but we aren't willing to be stuck with more maintenance fees for a property we aren't using.  So we're buying out of it.

Still, we're making headway.  And hopefully in the next few years, we'll be living the dream because of it!

What about you?  Have you thought about refinancing lately?  What would you do with a skipped mortgage payment or a refund of your escrow account?