We are refinancing!  After watching the mortgage rates decline, since the beginning of COVID last year, we finally hit our sweet spot which for us was 15 year mortgage at 2.25%.  Our previous mortgage was a 30 yr at 3.25%.  We purchased our home at a great price in 2012 and received an incredible rate due to the Housing Crash in 2009. By 2012 mortgage interest rates dropped in an attempt to bring buyers back to the housing market.  Though my fiancé, now husband, got gouged on the sale of his home, we made out like bandits on our new home.  No one had seen rates like 3.25% back then. 

A little mortgage rate history for you….  Before 2012 going back to the 70’s, mortgage rates danced between 8-10%.  Occasionally there were huge hikes, for example the 1980’s, which will always be remembered as a decade of excess, the rates averaged around 13.75% and were as high as 16.63% in 1981!  There would be drops in rates when bubbles burst for example the Tech Bubble in the early 2000’s rates dropped as low as 5% and hung around 6-7%, but 3.25% on a 30 year mortgage was unheard of. 

No one in our Financial Planning Office could believe the rates.  We were all refinancing for ourselves and our clients like crazy.  Since then, rates have hung around 4/4.5%.  Then 2020 hit us with the Corona Virus.  Rates have been going crazy again.  We have been watching for a year knowing that if they dropped a full percentage point for a 15 year we would take it.  Many of our friends and neighbors were refinancing, but we were waiting and watching, until last week.  One of my husband’s clients called.  She said she was offered a rate of 1.87% on a 15 year mortgage and wanted to know if she should move forward.  His response, “Absolutely, and send me your mortgage guys phone number, so I can do it too!”  We did not get 1.87%.  She lives in Alabama and we are in Georgia.  Generally rates vary slightly by state, and broker.  We still got a rate that over the next 15 years will save us around $50,000. 

Mortgage Interest is huge!  It adds up quick over time look at this chart to see what your interest rates mean for your total payment on a $250,000 home:

Keep in mind the amount of interest paid over 30 years is just interest.  In every one of these situations, the total principal paid is $250,000.  Interest adds up quickly.  It can turn a $250,000 home into a home that costs you $1,256,105!

So how do you know if you should refinance?  When we decided to consider our refinance, we took a few things into account.

1.  How much time is remaining on our current loan?
2. How much is our current mortgage payment v. our new mortgage payment? (Even dropping a percentage point going from a 30 year to a 15 year will increase the total payment, the interest will go down, but the principal payment will go up.)
3. How much does the mortgage broker want to charge for the refinance and how much time will it take us to recover these costs with the better interest rate? 
4. Are we considering paying off our mortgage early?  If yes, when and does this still make sense?
5. Is there a chance we may move? 

Our answers to all of these questions made a refinance the right choice for us.  Many of my friends and neighbors are currently refinancing, and I walked them through these same questions.  One neighbor is actively looking to move, but it still made sense for her, because she will recover the cost within 6 months, and she does not believe she will find what she is looking for within the year. 

There are many mortgage calculators online that can help with this decision.  I like www.bankrate.com/calculators/mortgages/amortization-calculator.aspx  because this calculator will give you the entire amortization schedule.  This is more detail than most, which I fine helpful.

If you have a number you are waiting for and are interested in watching rates, like we have been doing this year.  I was recently made aware of https://money.com/current-mortgage-rates/ .  This website is updated weekly with the newest rates and trends. 

I hope this article and these resources help with your personal decision.  As always, this blog is just for entertainment and a place where I can share my personal experiences, so check with your trusted financial advisor before you make any big purchases or decisions.