Thursday, May 21, 2009

Mortgage Refinance

With interest rates down across the board recently Linda and I have been looking for an opportunity to reduce our monthly payment by refinancing our 6.25% 30 year fixed mortgage.

In recent years many people refinanced mortgages to cash out some or all of their home equity. They effectively started over on their mortgages with the same or higher monthly payments. I was surprised by the number of loan officers who expected me to take equity out of our home. Our objective, however, was a lower monthly payment in case our income becomes jeopardized by the on-going recession.

4.875% to 5.125% interest rates on 30 year fixed mortgages have been available for months - but the quoted closing costs from the various lending institutions were in the $5,000 to $7,000 range. We were unwilling to pay that much.

One day a colleague mentioned that he had just closed on refinancing his home with a 15 year fixed mortgage at 4.5% and $2,000 in closing costs. I jumped on that and called his loan officer at BB&T Bank to see what he could do for Linda and me.

The BB&T loan officer was working 14 hour days seven days a week refinancing mortgages. There was a reason for that.

BB&T was able to put together a 30 year fixed refinance for us with a 5.0% interest rate, zero points, and closing costs of $4,500. $2,500 of the closing costs were effectively rebated by the return of escrow from our previous mortgage company and the fact that no mortgage payment was due in the month of closing (May) or the following month (June). More than half of the $4,500 closing costs consisted of interest paid to the previous mortgage company for the month of April, the prepaid interest to BB&T for May, plus setting up the new escrow account at BB&T. so the rebates were near one-to-one replacements of these charges. This left us with a net closing cost of about $2,000.

We rolled the $2,000 net closing cost into the new .mortgage. Even so, our total monthly payment was reduced by $133 per month; this despite a coincidental increase in our homeowners insurance and the required escrow.

Instead of allowing the extra $133 to trickle away we will continue making payments of the old payment amount and apply the difference to paying off the mortgage early.

Links to Cutting Expenses Special Report
Cutting Expenses - Introduction

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