Debt Free 101 – #60: 7 Refinance Tips

#60 Refinance                                                        

During our Debt Slaying Journey (DSJ), we lopped 7 yrs off of the Debt Dragon’s cousin Frank, The Secured Debt Dragon. While a brief stop to the DSJ was hard, it was worth the minor delay for a huge long-term gain. We went from having 22 years left to 15. Assuming we go the full term of the loan, we’ll save around $50K. We don’t plan on going the full term, but we’ll still save a bundle. The monthly payment did go up a little; but because we dropped PMI (yep we had PMI), and had recently dropped the water softener (Debt Free 101 – #49) and cable bill (Debt Free 101 – #50), our monthly budget was unaffected. We paid some upfront costs related to closing, but those dollars, over time, were well spent. Here are some thoughts we took into consideration and maybe can help you if you’re thinking about refinancing:

1. Check with your own lender first. There is legend that sometimes your lender will charge you minimal closing costs for your first refinance through that particular company. Legend. While I went ahead and attempted this, it has failed twice. Once with my previous lender and once with our current. “Just gimme a better rate” = not an effective negotiating tactic in the mortgage lending world.

2. Shop for rates online. We didn’t use an online lender. I’m more comfortable looking someone in the eye that is handling a deal with that many zeroes attached to it. However, you’re darn tootin that I compared the rates being quoted to me with those being quoted online to ensure competitiveness.

3. Find a broker. Ask your friends who have refinanced recently who they used. Inquire about their experience and whether they would use the same broker again. You can also get a referral from your professional network. Ask a realtor, lawyer, or accountant for a referral. These professionals are picky about who they refer clients and friends to and brokers don’t want to damage their professional network.

4. Get a deal. Can you get a deal with a refinance? You betcha. Or it least it doesn’t hurt to try. A loan is worth something to a mortgage broker, so see if the broker will lower the costs (can’t do much with the rate) surrounding the loan. If not, there are other brokers. Check around. Timidity does not a dragon slayer make. This is your money, your future, your life. Don’t worry what someone else thinks of you. Be polite, but don’t be afraid to ask for a deal. Your local bank may offer crazy low closing costs, but watch the interest rates and total cost (see paragraph 5).

5. Do the math. Maybe a refinance is not for you. I mathed our refi to death. Use a site with helpful tools.
Calculators like that one help you determine which loan is best for you and how long it will take to recoup your closing costs. It is crucial to look at those numbers especially because closing costs seem so large. Remember, this is an investment over time. If your rate lowers 1% – you are saving roughly $1,000.00 ($2,000.00 if 2% saved) for every $100K owed each year. What you’ll also find is that if you are not planning on being in your home for much longer, a refi may not make any sense for you no matter how tempting those low rates may be. Or in our case we don‘t plan to refi again even though rates have somehow dropped another 1% lower. We refinanced last year and we don’t plan on going the full term of the loan so its not the best choice for us right now.

6. 15 year. 15 year. 15 year.
The best mortgage is no mortgage. So go with the 100% down plan. If you can’t – DO. NOT. GO. 30. YEARS. Too long. Do the math with a calculator like the one mentioned above. You’re robbing your family’s future by going with a 30 year.

7. Just the house. The refinance is not a way to consolidate other debts . I suppose technically it can be. It’s just not a good way. Don’t. Yes the interest rate is better, but take into consideration the risk. Your house. Your home. Your abode. Especially do not roll your student loan debt into your home loan. Superspeciallly (a word for double especially), don’t roll student loan debt into a refinance if you are married. If the individual who owes the student loan dies, it’s normally wiped clean. However, if the student loan gets rolled into the mortgage, the surviving spouse is left holding the debt against his/her home for a very long time. This also does not help with the grieving process.

Have you refinanced recently? If not, what is holding you back?