We locked in our mortgage interest rate at the end of July. That day, we got 4.75% and 4.8something % APR for a 30-year loan. We were unsure of what would happen with the government on the debt ceiling stuff and it seemed like it could go either way at that point. Perhaps rates would jump, perhaps they would drop further.
We weren’t presented with an option to “float” our rate and we didn’t ask about it.
A few weeks later, rates hit a historic low. Surprise!
I emailed our lender to ask if there was anything we could do to get a lower interest rate. She checked it out and came back with knocking .25% off. We were down to 4.5% with an APR of 4.559%.
I wasn’t expecting her to lower it just like that for free. But she did!
We even signed forms that said something to the effect of “Your rate will NEVER decrease unless you refinance.” So, ah, what just happened here?
I don’t really know. Maybe she figured we could just switch to another lender since there was still time to do so, and since we hadn’t actually paid any money to them yet nor signed anything that said we had to.
Lowering our rate by a quarter of a point will decrease our monthly mortgage payment by $20 and will save almost $8,000 in interest if we never made extra payments.
Also, you’ll note that we are indeed getting a 30-year loan instead of a 20 or 15. I know Dave Ramsey says to get a 15-year only.
We did wrestle with it a bit. After all, the rate for a 15-year loan is lower than the 30-year.
Still, going with a 15-year loan would increase our monthly obligation by about $300. We could do it. But we’ve never had a mortgage before and we wanted to have that extra buffer in case we needed it. And we want to increase our retirement and college savings contributions while we still have a lot of time on our side. We figured that extra $300/month could do a lot more for us in other places, especially with our low interest rate.
Because with our 4.5% rate, we are also getting that awesome federal tax credit of 20% back of our interest paid thanks to the Mortgage Credit Certificate. Plus if we itemize our taxes (maybe that will happen this year, but maybe not), we will also be able to take the standard mortgage deduction.
The Mortgage Credit Certificate will give us about $22k back on our taxes over the 30-year span. Less if we pay the mortgage off sooner, but that is a-ok.
We will probably put extra toward the mortgage to accelerate its payoff, since it is a guaranteed return but it’s also saving money on interest and will free up cash flow when it’s paid off. But we’ll probably take a more balanced approach, putting our surplus money toward general savings, college savings, and the house instead of targeting just one goal.