We bought our house 10 years ago, at a price and interest rate that seemed incredibly reasonable.
A few years later, we refinanced our mortgage from a 30 year to 15 year term, and got what we thought was an incredibly low rate of 4.75 percent.
A few months ago, I started looking in to refinancing yet again, even though it was something I thought I would never have to do since my previous rate seemed so low at the time. After a lot of research, we decided to refinance with ING Direct. We chose a 7 year ARM at 3.125 percent.
The process was incredibly easy. Most of it was done over the phone and internet, and the closing costs were reasonable. (Yes, I do know there are no-cost refinancing options available, but from what I saw, the higher interest rate that came with the no closing cost options more than made up for what I would pay in closing costs. Proved the point that not much in life is truly free.) We didn’t even have to go anywhere to sign the final paperwork – a representative came to our house for that!
Refinancing took about a month, and the most stressful part was waiting for the final appraisal value on our home. I wasn’t worried that our home was underwater or anything, I was just afraid it was way below what we paid for it since housing prices have dropped so much in our area. Unfortunately, our house appraised out at $20,000 less than we paid for it 10 years ago, even though we have spent quite a bit of money in home renovations. It could have been worse though.. but it does drive home the fact that a house is not an investment, but a place to live.
We didn’t just refinance what we owed. We took out some extra money for various other reasons. After all, when else will I ever have the opportunity to borrow money at just over 3 percent? Keep in mind, we still plan on paying off our house within 6 years or so. However, this extra money will provide some flexibility and we also invested some of the money in the kid’s college funds. (Considering we can deduct up to $10,000 in college plan contributions from our Michigan state income taxes, we are already coming out ahead since the interest rate on the borrowed money is so low.) However, we still did not borrow the entire amount that we qualified for, as we wanted to keep our monthly payment below a certain amount.
My Biggest Tip When Refinancing Your Home
When you start the refinancing process, you are asked how much you want to refinance (meaning the amount owed or amount owed + cash back), and how long you would like the loan term to be.
Know the answers to those questions before you even initiate the process!!!
Mortgage companies want you to borrow as much money as possible and for as long a term as possible. Don’t be influenced by what you can have, only take out what you can afford. In our case, the increased payment is easily affordable and our payoff date will be no different after the refinance than it was before. (Based on the payoff plan we created for ourselves.) We are very disciplined when it comes to money, so we are trying to optimize the money available to us. However, if you do not have a set amount in mind ahead of time, it might be tempting to just borrow the maximum amount allowed. (Which can lead to disaster down the road.)
Overall, I found the entire refinancing process easy, and it was also interesting to know the market value of our home. (Even if it wasn’t the amount I wanted it to be.) The real test will be how responsive ING Direct will be if any issues arise down the road.
Have you refinanced lately? What was your experience?