Refinancing Complete and the Numbers are In

I recently wrote about our plan for yet another refinancing of the mortgage on our “largest” home (the home we will be selling as a final downsizing step.)  On Friday, we closed the new loan. I am happy about the final numbers.

It was interesting to note that each time we have refinanced, the underwriting process gets longer, even while our personal balance sheet gets better. Clearly, the new economy continues to add complexity and difficulty to the loan qualification process. I would not want to be seeking a loan in this environment if I had questionable credit history or weak financial numbers behind me. This is probably a good thing, if it prevents another real estate bubble from forming and then exploding.

This refinancing was somewhat unique because we were using it to replace mortgages on two of our three properties. We had a small adjustable rate mortgage on our main house with an  interest rate of 3.875% and a 30 year amortization. We had a somewhat larger mortgage on the condo. This was a 20 year mortgage at 5.25%, with a balloon payment due late in 2013.   We were stuck with that lousy mortgage for reasons related to the condo market in general and this condo in particular. It had nothing to do with us.

The new loan is a 7 year ARM, amortized over 30 years at 2.625%.  Because we have so much equity in the house (which we built in 1992), we decided to borrow enough to also pay off the condo mortgage.  This will leave us with one mortgage, one payment, and one amazingly low interest rate.

We were careful not to add to the total indebtedness so we incurred some out of pocket closing costs. (Our bank paid most of them as part of the enticement to do the deal.)

Even still, those out of pocket costs will be recouped in just one payment. That is because our two monthly payments will change to a single monthly payment that is $803 smaller. Granted, some of that decrease is a result of re-amortization. However, in just the first monthly payment (now due November 1), the interest we will pay will be $748 less than if we kept the original mortgages. That is no chump change.   How could we not do this deal?

If we keep the new mortgage for an extended period, we would also have to compare the total interest paid to determine the real cumulative benefit. In our case, that analysis is not necessary because we will sell the house and pay off everything before the interest rate resets. When that sale occurs, that will permanently put an end to all of our borrowing, for any reason, unless some catastrophic event occurs.

Now I am ready for interest rates to increase so that all of us can begin to earn something on our savings deposits!

Have any of you taken advantage of recent refinancing opportunities? Or are you way ahead of us in becoming 100% debt free?


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