When we bought our modest Cape Cod home back in June 2009, we thought interest rates on mortgages would never drop lower — they were already at historic lows! We got a 5% interest rate on our mortgage and put 20% down so we’d avoid paying PMI (private mortgage insurance). You know, doing it “right.” It’d be our one and only mortgage for the rest of our lives, barring a big lottery win.
Oh, how wrong I was on both counts.
First of all, mortgage interest rates have dropped even further in the four years since we purchased our home. And then we busted that whole “only one mortgage, ever” idea.
I’d flirted with the idea of refinancing our home last February, when interest rates were around 4%. But I knew despite the 20% down payment and principal-building monthly payments, we weren’t going to crack that magic 80% loan-t0-value ratio come the crucial appraisal time — home prices were still fairly low for the Northern New Jersey/NYC metro area.
I decided to bide my time. By December, I was back to researching home prices in our area, brokers, banks and their corresponding rates, and figured it was worth a shot.
After a ton of Internet research, I decided I wanted to go with Guaranteed Rate, a newer mortgage company out of Chicago. I found a representative, Joe Cafiero, out of the Philadelphia area who was very active in answering questions and assisting others on Zillow.com, and who had a great rating across the board. And he wound up being even better than the loan officer from our local bank who worked with us on our original mortgage.
Our stellar credit scores (hovering thisclose to 800, but actually 800 at one credit reporting agency in my husband’s case) allowed us to lock in a 30-year mortgage interest rate at 3.375% for 55 days, at .25 point. Yeah, points suck, but if you’re going to stay in your house forever like we are, do the math for each interest rate/points option — it’s usually worth paying a little more up front to save tens of thousands of dollars in interest in the end.
The Paperwork — Ack, Ack.
This was the most tedious part. It took forever to scan in all of our supporting documents, as they would jam in the feed tray of my dad’s printer/scanner, and I had to start from scratch because of the craptacular software. And I didn’t want to send the company a billion PDF files. It was a few hours of my life that I’ll never get back, but it got done.
Then the appraisal had to happen — and the estimate had to come in at a certain number so we could (again) avoid the PMI payments (a complete waste of money — they don’t go toward the principal!). I was on pins and needles the entire week it took to get the appraisal report.
Amazingly, the appraisal came in very close to what we were looking for. But in order to get to that 80% LTV ratio, we would have to make up the difference by paying $3,000 toward the mortgage principal. Otherwise, we’d be paying PMI for a few years. In the end, it was a no-brainer: Pay the $3,000 toward the principal now, rather than make PMI payments toward nothing.
The next step was getting through the underwriting process. After submitting our 2012 W-2 forms, we waited. Three days later, we had full approval for the new mortgage loan. The refinance was actually happening!
Our closing was scheduled for last Friday — the day that crazy blizzard named Nemo slammed into the Northeast. The woman from the title agency barely made it to our house — she’d already moved up the closing a few hours since we were home. After signing a bajillion pages, initialing a few thousand more, and handing over a sizeable bank check, we were good. Then we watched her head back down our front steps in her five-inch heels and prayed she didn’t fall.
Dropping our interest rate from 5% to 3.375% is saving us a whopping $362 a month in a lower mortgage payment. The closing costs will be recouped in 10 months. Even though we made 3 1/2 years of payments on the original mortgage loan, we’ll still save nearly $60,000 in interest by the end of this new 30-year refinance mortgage loan. And I’m hoping with some well-timed extra principal payments, we’ll be on track to shorten this mortgage by a few years.
I think we did the right thing. The numbers say we did, at least.