I'll admit when I first refinanced from a 30-year to a 15-year fixed-rate mortgage, I had some doubts. I worried about committing to the higher payment and whether I'd have enough money for extras.
But after a few months of making the $1,222.02 payment, I realized it wasn't going to be as difficult as I had imagined. Besides, we are saving about $51,000 in mortgage interest because of our reduced interest rate and the shorter length of our new loan. And by refinancing, we are ensuring we will pay off our house early.
Making it easy to be disciplined
Of course we could have paid extra on our 30-year mortgage every month instead of refinancing to a 15-year mortgage, but we knew we weren't disciplined enough to do that. We wanted to force ourselves to pay off our mortgage faster by being locked into a new, higher payment.
I've been surprised to discover that the new mortgage payment isn't a burden. In fact, I feel as though we are more motivated now to pay extra on our 15-year mortgage. Every month we challenge ourselves to pay just a little bit extra beyond what we paid the prior month. If we continue on this path, we should have our mortgage paid off in another seven or eight years.
Achieving our retirement goals
Since our mortgage is our biggest bill every month, my husband and I realized it stood in the way of our retirement goals. If we had stayed with our 30-year mortgage, we would have paid it off by the time my husband turned 66, which is his full retirement age. Now he will have the option to retire early if he chooses to do so. We are on track to have the mortgage paid off by the time he turns 57, and that's if we only pay the minimum amount due every month; since we pay a little extra, we hope to pay it off even sooner.
Saving the closing costs
Since my husband and I were offered a free refinance through our bank, we didn't have to worry about the fees associated with refinancing, such as an appraisal fee, loan application, land survey, attorney's fees, title search and insurance, transfer taxes, recording fees, and other closing costs. In order to get the free refinance, I just contacted my mortgage company and asked about refinancing; they said they were motivated to keep our business.
Reducing our interest rate
We were able to reduce our interest rate from 5.99 to 4.625 percent through our refinance. My mortgage company said we would be saving about $51,000 by switching from the 30-year mortgage to the 15-year mortgage with a lower interest rate. Since we were only about six years into our mortgage at the time of the refinance, we will now end up paying off our mortgage in 21 years instead of 30 years. Of course, we still have the option to pay extra on our mortgage, which will reduce the amount of interest paid even more and help us pay off our house even faster.
More from this contributor:
- Mortgage Loans