Thursday, May 15, 2008
Today we closed on the refinancing of our mortgage.
If you've read my early blog posts, you know that we bought our home a couple of years ago on our way out of some major financial problems. Perhaps not the only way to get into our home, but one of the only ways we were able to find, was to sign an adjustable rate mortgage. The initial rate was at 7.89%.
With an anticipated increase of about 2.5% with the first reset on June 1 of this year, we began looking in to refinancing a couple of months ago. We learned that qualifying for the new mortgage would not be a problem, but we'd have to wait until after May 10th to close to avoid hefty pre-payment fees.
What we have now is a fixed-rate FHA mortgage with an interest rate of 7.1%. Our new monthly payment is within $1 of our old payment.
I don't fully understand the ins and outs of the current sub-prime mortgage crisis, but I do think I know some of the reasons why refinancing was not a problem for us.
First, when we bought our home in 2006, we were told over and over by our lender that we would want to be sure to refinance as soon as our two year lock-in was over. The lender really drove that point home, so it's been on our minds for the last 24 months.
Second, for that reason and others, we've made sure to keep our credit clean and did what we could to improve it.
Third, we bought a modest home in an established and stable neighborhood, and our home's value has appreciated in the last 24 months. Had we bought a more extravagant home in an up-and-coming neighborhood, we may very well have found ourselves "upside down" in our home.
Fourth, we got lucky. When we signed the original mortgages, neither of us felt as if we were taking a huge risk, and we both felt that buying a home was a good investment and, done correctly, a huge step toward the repair of our credit rating. But it was a risk just the same, and smarter folks than us probably wouldn't have taken it at all. It worked out fine for us, but I certainly wouldn't want to do it again.
So, that's one more financial goal met and marked off our list. Our new immediate goals are to pay off the van as quickly as we can (which should happen much sooner than we first thought), while simultaneously adding funds to our savings and home improvement accounts. Stay tuned for further updates.