How We Saved over $20,000 with a Mortgage Refinance

By | 2016-10-10

Mortgage Interest Rates dropping over the last year to historic lows have presented a unique opportunity to consider a Mortgage Refinance. Knowing we could potentially save thousands of dollars on one of our biggest expenses, I finally decided to get my act together.

Our Current Mortgage

We were on the unlucky side when we locked in on our last mortgage, hitting a mini peak in rates between two valleys. Currently, we are in year 2 of a 30 year fixed mortgage with a 4.25% interest rate.

I hate to admit this, but want to be fully transparent. We only put 10% down on our property so we do have to pay monthly Mortgage Insurance of $89. From a purely financial move, this is a mistake and I knew better as we did it. We were both against renting, we wanted to own our house and sacrificed some Financial Principles to do so.

Our first house was bought FHA at 3.5% down….. but we walked with 25K in profit after a little over two years thanks to a hot housing market. The profit combined with equity we built rolled into the down payment for our current home.

4.25% isn’t a terrible rate, but hearing about Financial Samurai and Jon at BeNetWorthy refinance at amazing rates, I decided to Take Action and start investigating.

Using Lending Tree

After reading some great reviews on Lending Tree I started there, thinking it would be a one stop shop for the lowest interest rates. We both have credit scores around 750, I was surprised to see the best available rates were close to 3.75% for a 30 year fixed loan. The 7/1 ARM rates were on the high side as well, they came back with 3.375% as the best available option.

I did some spot checking and found out major banks were publishing lower rates and decided to continue my search.

One thing that I was not impressed with was the amount of phone calls I received from mortgage companies after using Lending Tree. 5 calls a day for 2 weeks followed the application. Its possible I missed the opportunity to block calls, or agreed to it as part of the process. But I thought the point was to keep the entire process online without having to give my information out to multiple companies.

Mortgage Refinance: Broker

I was talking about my experience with Lending Tree and was recommended a Broker be a co-worker. Having never used a broker there was some hesitation in trying it out. I figured their fees would be on the high side.

The broker was great at his job and provided very prompt, direct feedback to all the questions I had. Moving forward I will reach out to him again to see what he is able to track down.

Details:

  • 30 year fixed was 3.375%, 7/1 ARM was 3.25%
  • Closing costs were $4,412
  • New Payment would be $1,713/Month

The new monthly payment for the 30 Year Fixed would be $196 cheaper/month. Break Even Point* would be just over 22 months.

The new interest rate would save us $47,192 in interest over the full 30 years.

I almost quit searching and locked in this rate at 4:40 PM last Wednesday but decided to sleep on it and check out 1 more option before making the decision.

*Calculating where drop in monthly payments would cover the cost of the refinance

Mortgage Refinance: Credit Union

The last option I checked out was a Credit Union I have been a member of since I was 16. I have kept a savings account open with $15 in it just to retain my membership.

Details:

  • 7/1 ARM at 2.75%
  • Closing Costs are $3,492
  • New Payment would be $1,571

The new monthly payment for the 7/1 ARM is $338 cheaper/month. Break Even Point would be 10.3 months. A 1.5% interest rate drop is huge and will save us $26,684 over the next 7 Years*. Since I wont know what the rate is beyond the first 7 years I can’t calculate the total savings of the re-finance.

We have already accepted this quote and moved into the full underwriting process. It is to good of a deal to pass up. Since we don’t think we will be in this house over 7 years, we felt it was better to lock in the lower interest rate.

A little patience paid of in a big way, just goes to show that you should investigate multiple companies before making a decision.

*Actual savings will be lower since we wont be able to deduct as much interest from our tax returns

Unsolicited Calls

Our current loan servicer randomly called on Saturday and asked if we were interested in re-financing. I told him we were currently evaluating our options and since they already had all of our information it only took five minutes to get a quote.

They offered a 7/1 ARM at 3.25%, I explained right away that a better offer was already on the table and would call back if it fell through.

Take Aways

  • Be honest with the refinance companies – If you find a better offer, tell the people you have been working with. I was thanked by both of the companies we didn’t choose for being upfront and honest. I get the feeling a lot of people waste their time and don’t follow up.
  • Willing to give out cash – Every person I worked with asked if we were planning on pulling cash out with the refinance. Must be done a lot and I think there are very few situations that this would make sense (Paying off high interest debt comes to mind).
  • Lot of moving parts – The finances behind a refinance can be a little tricky when comparing multiple loan types. I looked at the drop in monthly payments to calculate the Break Even Point of the refinance combined with the interest savings over the relevant period to make a decision.
  • Rolling Closing Costs into Mortgage – We are currently debating on if we will roll the costs into our mortgage or just pay cash up front. We may take a loan from our Emergency Fund and pay the monthly payment savings back to ourselves.

Would you make the same decision? Would yo pay the closing costs up front or roll them into the mortgage?

Some products that can help you:

Disclosure Policy

Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time!

Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They were great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.

30 thoughts on “How We Saved over $20,000 with a Mortgage Refinance

  1. Jon @ Be Net Worthy

    Hey AE, thanks for the shout out and I’m glad the article helped to motivate you to TAKE ACTION! 2.75% is an awesome rate. We ended up refinancing our at 2.875% with a 15 year fixed term.

    If you are not planning on staying there long, then I would roll the closing costs into the mortgage. You are getting a great rate and you could put that money to use in savings. No need to impact your emergency fund in my opinion.

    If you were planning on staying in the house until it was paid off, I would say to pay the closing costs separately and keep aggressively paying the mortgage down with any additional savings.

    You mentioned paying PMI up top. What we did on our first home was to get a 1st mortgage at an 80% loan to value and then get a 2nd mortgage for 10% loan to value. The last 10% was our down payment. In this scenario, you pay no PMI and get a lower rate on your 1st mortgage. We focused our savings and aggressively paid off the 2nd mortgage in a couple of years and then we were golden. Just a tip to try if you are in a PMI situation again.

    Congratulations and enjoy the savings!

    Reply
    1. Apathy Ends

      That is a great rate on a fixed loan, I have heard of doing the second mortgage to get you to the 20% and avoid PMI but never really considered it (unfortunately)

      Thanks for the advice, I think we will roll part of the closing costs in, I will get to “skip” a payment through the refinance process and will use that money to pay part of the closing costs.

      Thanks for the comment!

      Reply
  2. Mustard Seed Money

    Congrats on the mortgage re-fi. I think it was incredibly smart to consider how long you intend to be in a house. I think too often people lock into a 30 year fixed based off perceived security or jump into an ARM based off the lowest rate. I like that you analyzed your position and where you want to be in a couple of years. Smart, very smart!!!

    Reply
    1. Apathy Ends Post author

      Thank you MSM – how long you plan to live in the house is definetely a good factor to consider. If we decide to stay, we will have to pick our place to do another refinance.

      Reply
      1. [email protected]

        Agree with Mustard Seed Money! I took a 30-year fixed mortgage because that was want “everyone” does and the one the mortgage broker offered…she didn’t even ask if I wanted an ARM. It seems that ARMs got a bad rap back during the housing crisis. But ARMs can make sense…those no interest balloon payment mortgages back then did not. We have a growing family and I knew we probably wouldn’t stay longer than 5-7 years so we wouldn’t have saved a lot more with an ARM.

        Reply
  3. F
    Full Time Finance

    Congrats on the refinance. We just closed ours last week. From 4.12 to 3.12. We went to a 15 year though. I have a post upcoming (I believe next week) on our experience with no closing costs loans. That being said be aware there is a third option. You can trade the closing costs for a higher interest rate.

    Reply
    1. Apathy Ends Post author

      Thanks – That is an awesome drop! Shoot it over once you post it, I want to check it out!

      Reply
  4. Amanda @ centsiblyrich

    We refinanced in August at a 3.25% 30 year fixed, saved approximately $150/month and thousands in interest! Refinancing at a lower rate can be a very positive financial move, but you are right, you need to do the calculations to see exactly how much you are saving and how long it will take to pay for itself. For us, the closing costs were so low, the refi will pay for itself within a year.

    We had PMI on a house over a decade ago. After being in the house for a little over a year, we had an appraisal done. The house had appreciated and we had paid enough of the principal down to reach the desired 20% difference in the value and what we owed, so the PMI was removed without us having to pony up any money. Maybe your appraisal for your refi will get you closer to the desired 20%!?

    Reply
    1. Apathy Ends Post author

      That is awesome!

      If it wasn’t for all the damn taxes and titles fees it would be incredibly cheap to refinance – I am hoping we get a crazy appraisal, that would be awesome.

      I still don’t really get the whole PMI thing – we have a perfect payment history with great credit scores – but I need to pay you clowns anyway.

      Reply
  5. S
    Stefan - The Millennial Budget

    While I am still years away from these decisions it is great to learn about what others have done to substantially reduce their cost. There are many factors but for me one of the most important is length of time expected in the home.

    Reply
    1. Apathy Ends Post author

      Thanks for the comment Stefan, that should be a huge factor when deciding the loan type. The rates are so low right now its pretty much a fire sale

      Reply
  6. Finance Solver

    $20,000 is nothing.. Just kidding, that’s fantastic! I didn’t know these guys actually share customer information with third parties.. I remember submitting one online application for car insurance and I’ve been getting calls non stop for a month afterwards, it’s definitely annoying.

    I’ve been hearing so many people refinancing because of the historical low interest rates. It makes me want to own a house.. Hmm..

    Reply
    1. Apathy Ends Post author

      I was a little shocked they shared information – definetely will pay attention next time I fill something like this out because it did get annoying.

      Haha – if you want to take advantage of these rates its a great time!

      Reply
  7. Kalie @ Pretend to Be Poor

    We did a no-fee refinance about four years ago to a lower rate. We also took the opportunity to switch to a 15-year mortgage instead of 30 (we were paying it like a 15 year anyway). We saved almost $50,000 total in interest through these moves, as well as additional prepaying. Glad to hear you could save big, too!

    Reply
    1. Apathy Ends Post author

      Thinking that you can save 50K by doing a little research is crazy! Once you land on a company to do the refinance there is not much more work to do.

      Thanks for the comment and we are pumped about the savings too!

      Reply
  8. My Money Design

    Nice work! We refinanced our mortgage earlier this summer under almost the same circumstances (Year 1 of a new 30 year mortgage) and it saved us about $80 per month. It’s amazing how that one move will pay for itself in just 2 years, but ultimately it will save tens of thousands of dollars in interest over the long haul. I’d say that’s some good ROI!

    Reply
    1. Apathy Ends Post author

      Thats awesome and great ROI! For very little work, doesn’t get much better than that.

      Reply
  9. Mrs Groovy

    You did incredibly well! Nice work. And good for you for having patience.

    It’s so odd that more than 10 years ago when we did a refi in NY, I checked Lending Tree. I was bombarded with emails and not impressed with the rates. I would have thought they improved by now…It’s sad that many people use their home as a piggy bank and take out cash for vacations, cars, you name it.

    Reply
    1. Apathy Ends Post author

      Thanks Mrs Groovy!

      I am surprised they operate that way – definetely wont be recommending them

      Reply
  10. ADI

    This is definitely a big win! Well done.

    I know so many people who have, for whatever reason, never really thought about refinancing. I’ll have to share this post with them!

    Reply
    1. Apathy Ends Post author

      Thanks for the comment! Anyone with a rate over 3.25 should be taking a look right now

      Reply
  11. Team CF

    Good for you guys. That is an very good rate and some serious money saved on paying interest. We applaud you for taking action.
    We ended up settling for a 5 year mortgage at 2.39%. Once we pass the 95% mortage ratio (mortage over property value ratio ) it will drop bo 2.19%. Hope to achieve this before the end of the year.

    Reply
    1. Apathy Ends Post author

      Thank you! I am pretty excited still.

      That is crazy low – practically free money at that point

      Reply
  12. Mr. PIE

    Nice work. Ain’t the savings over the term just sweet?
    We took advantage of three refinances in the last 18 years. The last one at 2.5% with NO closing costs on a 15 year mortgage.

    Liked the comment from Jon on the PMI avoidance strategy. Not that we will need it but great idea for others who are getting on the first rung of the housing ladder and need to navigate the waters of PMI.

    Reply
    1. Apathy Ends Post author

      Thanks Mr Pie – pretty awesome to find a no closing cost option with a crazy low interest rate

      I hope to never need PMI again, but will put it in the back pocket for sure

      Reply
  13. Ms. Montana

    Perfect Timing! Mr Mt was just on the phone with lending tree yesterday talking about refinancing one of our properties. I haven’t had the bandwidth to think about it, but maybe I need to carve out the time!

    Reply
    1. Apathy Ends Post author

      Carve the time out! Save some serious money – hope your experience with Lending Tree is better than mine

      Reply
  14. [email protected]

    Thanks for the information. We’ve been planning to refinance the mortgage on our rental property for quite some time now, but we wanted to get debt paid off first to boost our credit scores. We will definitely check out the options with our Credit Union.

    Reply

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