Downsizing and Mortgage Refinance Strategies

For the past year or so we have been openly discussing downsizing from our primary residence after our youngest son graduates from college next spring. We would take the proceeds from the sale and either buy something smaller in the area or, more likely, rent. Now we are rethinking that strategy.

With interest rates on refinancing so low, it appears that we can reduce our mortgage payments on our present home to a point where it would be more expensive to rent. Refinancing would allow us to stay where we are and use the extra cash flow to gradually make the upgrades we were planning before selling. We are in no hurry to leave the area because my office is here and because it seems that our sons enjoy living in the city where they grew up. How about that?

Our new community bank offered us a seven year ARM at 3.875% with no points or origination fee and a $200 rebate of our closing costs because we are an existing customer. The lower rate and new amortization schedule will cut our total monthly payment (PITI) in half and reduce our monthly interest payment by more than $200.  The lower interest payment will allow us to recoup our out-of-pocket (non-escrowed) closing costs in less than a year. I chose not to finance the closing costs because I am emotionally opposed to increasing our debt load on an existing asset. We can either sell the house or pay off the loan before the rate adjusts seven years from now. It seems like a no-brainer. The extra cash flow will also make it easier for us to finance our condo purchase and not be in a hurry to sell our primary home.  Our lake house is paid for.

The downside to keeping the house is that we will have a lot of equity tied up in the house for a longer period. If the stock market were flying high, the lost investing opportunity would be a concern. In our case, I expect that we will get more of a return (and tax free at that) from a rebound in real estate values in our area.

So it looks like our physical downsizing will be delayed but our cash flow downsizing is on schedule. I locked the rate on the loan today and started the paperwork.

During my search for refinance rates, I called Bank of America, our long time (but soon to be former) bank. The loan officer was located in another state. The Bank of America rates were much worse than those offered by our new community bank. I specifically asked if we could get preferred rates or lower closing costs because of our long time relationship and because our present mortgage is with BofA.

“No can do” he said. “That would be discriminating against other borrowers who are not bank customers.”

Of course it would. That’s how you keep long time customers, by rewarding them for their loyalty and profitable business relationship.

No can do, he said.

No more Bank of America, I thought.

What do you think about this new strategy? Have you explored the benefits of a new banking relationship?

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My Related Posts:

1. The Emotional Side of Home Downsizing
2. Reasons Downsizing Makes Sense
3. Downsizing Compared to Upscaling in Retirement Living
4. Downsizing and the Sunk Cost Fallacy
5. Boomer and Retiree Downsizing on the Extended First Time Homebuyer Credit