Refinancing Again

First, I hope everyone had a Merry Christmas yesterday (or simply a nice Thursday, if Christmas isn't your thing.) I've been busy here with holiday preparations, working at getting out of my recent funk, and also working a on big non-holiday task, which was refinancing our home on Christmas Eve.

Just six months ago, we were happy and relieved when refinanced from an adjustable rate mortgage to a fixed-rate FHA mortgage. We were surprised and pleased when our mortgage lender called us about 10 days ago to tell us that our FHA loan was eligible for their streamline refinancing program. It's "streamlined" in that we were able use the same application, appraisal, credit reports, bank statements, etc., that we used in June. We had the option of reducing our 7.12% loan to a 6.25% loan.

We also opted to go ahead an have a new appraisal, because if the property appraised high enough, we could lock in at an even lower interest rate. Good news! Our property appraised at $7000 more than it did in June and we were able to lock in at 6.00%. Despite the current economic climate, our home increased in value for two reasons. The first is because we've added a large utility shed, a privacy fence and a sump pump since our last appraisal. We were told the other reason was that our home was compared to a house adjacent to ours on the street behind us. It has the same floor plan as ours and it recently sold for price considerably more than our last appraisal.

Ours was a "no-cost" refinancing. This is a little misleading, because there ARE costs, just no out-of-pocket costs. The closing cost were added to our mortgage. This means that our current payoff is now higher and it will take us a quite few years to break even on the closing costs. However, since we don't plan to move for many years (if ever), we will save about $15,000 over the life of the mortgage. The amount we will save will far exceed the cost of refinancing. In addition, our monthly payment has decreased by about $40.

Although this is good news, and we'll be saving money in the long run, it seems a little depressing to me (and probably confusing to others) when I update our debt reduction progress in my sidebar. It looks as if we're further in debt (and indeed we are, if we were to pay off the mortgage right now).

In that light, I've decided to change my sidebar to reflect only our non-mortgage debt, which for us, is our van payment. I'll be applying the $40 monthly mortgage savings to our van payment. While we would probably save more money in the long run by applying it to our mortgage principal, we've decided to apply it to our van loan. The van will only depreciate, while our home will (we hope) hold or increase in value; it makes more sense to us to pay off the van as soon as we can.