It’s Been Two Years Since Our Refinance

Two years ago we completed the re-finance of our house.  I thought I would go through some of the numbers and things that have happened.

Original Loan: 30 year mortgage, 5.875%, closed July 2007
New Loan: 15 year mortgage, 3.375%, closed November 2011

Increase in monthly payment: $157.69

Reduction in total term: 10 years, 8 months

Principal paid on new loan in the first 24 payments: 10.67%
Principal paid on old loan in prior 24 payments: 4.97%

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I Still Can’t Justify Walking Away

Last year I wrote a post outlining why I think people who haven’t lost their income should pay their mortgages regardless if their home values have gone down.

I’ve seen this topic resurface over the last few weeks.  It seems that more and more people and bloggers are leaning towards saying that ‘It’s OK’.  A lot of this had to do with a financial planner’s story of how he went through this with a Las Vegas home.

Since it’s been awhile, I thought I’d reconsider it and see if my opinion has changed.

Short answer: It hasn’t.

See, Ninja at Punch Debt in the Face wrote how his opinion has changed, largely because he now sees it as the bank and customer entering into a deal, but that people and businesses break deals and end contracts all the time.

If it were that simple, I would be 100% in that corner.

Read moreI Still Can’t Justify Walking Away

Jumping On The Re-Finance Bandwagon

With interest rates on mortgages falling, I couldn’t help but be intrigued when I saw 3.375% on a 15-year mortgage.

The biggest, problem, I thought, was that we had nowhere near 20% equity in our house, so I wasn’t sure if a re-finance would mean one or more of the following:

  • I’d have to bring a big chunk of money to the table to get to the 20% line
  • I’d have to start paying an escrow fund (we pay our own taxes & insurance and I would prefer to keep it that way)
  • I’d be forced to pay PMI which would probably wipe out some or all of any savings.

Still, 3.375% is 3.375%, especially when you’re currently paying 5.875% on a 30-year note.

My mortgage is with Citi.  I went online, as that’s where I do all of my business with them, and filled in a few fields that would allow for a mortgage rep to contact me.  I figured it would take a few days.

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Will Homeowners Be Better Equipped To Fight Inflation?

I’ve seen various thoughts on the matter of whether owning a home is a good hedge against inflation, specifically a home with a fixed rate mortgage.  Many economists are predicting that rising inflation is inevitable over the next few years.

A simple example uses the following as a basis to say yes:

  • Your payment will stay the same.  If you have a home and lock in a 30 year mortgage with a $1,000 per month payment, your payment will stay the same for the life of the loan.  If prices double over a ten year period, your mortgage payment stays the same whereas your rent payment would likely double over that period.
  • Your interest rate stays the same.  During times of high inflation, interest rates creep up to what can be pretty high levels.  If you lock in a 4% interest rate today, you’ll beat any mortgage available during high inflationary times.
  • Unless home prices fall dramatically again, you’ll have equity.  This is the part where most people these days are going to say ‘A-ha!’ and rightly so as prices have been in a downward trend over the past years.  But, up until a few years ago, most homeowners who got a fixed rate mortgage at a low rate would have equity within a couple of years whereas a renter never has any equity in the place where they live.

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Your Mortgage Is Debt, Too!

I see it all over the place.  On TV.  On blogs.  In news articles.  It doesn’t matter.

When talking about debt, mortgages seem to get glossed over.  The focus always seems to be on ‘non-mortgage debt’.

While this is good, the fact remains that you still owe on your mortgage.  It’s still debt.  And, chances are, for most that have a mortgage, it’s the biggest debt and/or the biggest monthly payment that you have associated with debt.

So, why might mortgages get ‘left out’ of the debt discussion?  Just speculating here:

Read moreYour Mortgage Is Debt, Too!