Interest rates are at an all time low. My husband and I are in the process of refinancing our home from a 30 year mortgage to a 15 year mortgage, and the payment will just be slightly more than we were paying before.
Our situation: We are actually combining our current 30 year mortgage and 30 year home equity line that were at 5.75% and 6.125% to a new combined mortgage at 4.25% 15 year amortization.
Coming up with cash: Our biggest fear was that we would have to come up with cash to make this happen because home values are so low. If our house does not appraise high enough, we will need to put cash down to reduce the size of the mortgage. The good news is if we do put down the cash (about $50,000, our payment will be less than we are paying now and we will save hundreds of thousands by paying off in 15 years rather than 30 years.
Comparable appraisals: Many of the houses on the lake are very unique. Ours is two cottages joined together into one house…then several additions…lots of landscaping and then waterfront on the lake and on the river. Finding a comparable house on the lake may be difficult. Our mortgage broker seems to think that our house will appraise high enough that we won’t need to come up with the cash. It seems that there have been several home sales on the lake at favorable market rates. All of this needs to be considered when making a decision to refinance.
What about closing costs? When there are closing costs, you will need to compare those up front costs to how long it will take for you to break even. In addition, if you have refinanced in the last few years and paid closing costs, you will want to bring those into this calculation. In our case, there were no closing costs, so the decision was simple.
Consolidating other debt: I mentioned that we are combining a home equity line and our mortgage. The home equity line was for a major home addition and a lot up north. I don’t suggest refinancing your unsecured credit card debt into your mortgage especially if this could jeopardize your current financial situtation. Consult with your tax advisor on this as well.
Is this a good time for you to refinance? Do the math and see if it makes sense. Again, consider having a discussin with a financial professional will be your best bet. Good luck and feel free to share your experiences or ask your questions here.