For the past four weeks, mortgage interest rates have fallen to new lows. That’s not a one-time thing. Instead, in each of the past four weeks, mortgage interest rates have dropped a bit lower, allowing those of us in the news media that watch this sort of thing to proclaim a new record broken.
Interest rates have fallen so precipitously, that it’s hard not to come to the conclusion that if you can refinance, it’s time to pull the trigger and start filling out paperwork.
That’s what I did this week. After thinking two years ago that my 15-year at 4.25 percent would be the last loan of my life, last November we pulled the trigger again, and went down to 3.75 percent for a 15-year.
This week, we did it again. We pulled the trigger and locked in on a 3.375 percent 15-year loan that will save us another $20,000 in interest (at least) over our last loan.
The key to really saving money on a refinance? Keep paying the same amount each month, regardless of what the new monthly payment actually is. So, we’re paying the same amount on our loan from our 15-year at 4.25 percent. If we keep making that payment, we’ll probably get our loan paid off in 11 to 12 years, instead of 15. So, we’re shaving years of payments and that translates into plenty of savings, far more than $20,000. (If we keep this loan and pay it off, I’m guessing that we’ll save closer to $50,000 – which is a year or two of college tuition, depending on where our kids go.)
As I was signing documents this week – and reading them over carefully – I noticed how much we had paid off our loan. It’s great to see so much going toward principal each month. Personally, I find it quite motivating, not to mention liberating.
I love seeing our balance fall, although with interest rates this low I could see getting a 30-year rate and just using the cash for other purposes. After all, at 3.375 percent, I’m paying virtually no interest as it is. It makes this property much more affordable. (But don’t get me started on real estate taxes.)
Will I refinance again or is this my final loan? Never say never. My understanding is that the Fed is trying to push down long-term interest rates even further. That means 10-year, 15-year and 30-year loans could get even cheaper. If they do, I probably will try and refinance again. But next time, I’ll probably bite the bullet and go for a 10-year loan – especially if I can snag one at less than 3 percent interest.
For those of you with little kids, try to qualify for a 15-year loan. Then, try to stay in the house so you can pay off your mortgage by the time your kids go to college. It will be great to free up that monthly payment, just in time to pay college tuition bills.
Useful Calculators and Refinance Tools
If you’re looking for some helpful calculators and refinance tools, try the toolset at ThinkGlink.com.
I also like the refinance and mortgage calculators at eloan.com.
Show notes: As I mentioned on the air this morning, my radio show is being pushed back an hour next week to accommodate Georgia Football on Saturday. I’ll be on from 1 to 3p ET Sunday, September 25, 2011.