Sep 10 2012

Closing on our refinance today! Could be a $250k+ net worth gain.


Just one year (plus a week) after we bought our house last year, we’re closing on our refinance.

Last year, interest rates were low and we obtained a 4.5% 30-year fixed loan. I didn’t think rates would drop much, but I was wrong.

In March, I said we probably wouldn’t refinance unless rates were in the 2% range, and at the time I mistakenly thought that if we refinanced, we’d lose our Mortgage Credit Certificate.

I now know that’s not true. We just need to reapply and pay a $325 fee. We shopped around and are going with a different lender this time (lower interest rate AND cheaper closing costs).

Old loan: $668.82/month. 4.5% for 30 years. $132,000 starting balance. We made a total of $260.10 extra in principal payments. We’ve already paid $5,401 in interest, and only have reduced the principal by about $2,000.

With no extra payments beyond what we’ve already done, we’d pay $108,056 in interest.

New loan: $890.30/month. 2.875% fixed for 15 years. Starting loan balance: $130,050. Total interest with no extra payments: $30,204.

We’re saving $77,852 in interest. And, we’re eliminating 15 years of $668/month payments (the second half of that 30-year loan).

That’s $120,240 in cash flow freed up, for a total improvement of $198,092. And that’s not even calculating the growth that the freed-up cash can do when invested.

I could argue that refinancing could improve our net worth by more than a quarter million dollars when it’s all said and done.

Um. Whoa.

We’re building equity much faster than we would have without refinancing.

This means that when we go to sell, simply by having a lower interest rate and a faster amortization period, we’ll have that much more cash in our pocket from the sale.

Twelve months from our refinance, we’ll owe $123,013 on our house. With no refinance, that same month we’d owe $127,336.

Twenty-four months from the refinance, we’ll owe $115,771. Without the refinance, we’d owe $125,023. Almost $10k more in equity by refinancing, after only 2 years!

That’s the point I want to drive home to those of you who are considering a move in the next few years.

It’s worth crunching numbers to find out if it would make a difference for you in terms of payment and equity. If you’re already several years into your loan and are planning on moving soon, it may not be worth refinancing. But it could still have a big impact.

Our closing costs were $250. In addition, we have to pay $10.38/day in interest charges from the date we closed until the first of next month, so $218.

Our first new payment of $890.30 isn’t due until November 1, so that delay is nice for cash flow and recovering those closing costs, in a way. Instead of October’s mortgage payment, I used that cash for closing costs.

It certainly is true that small amounts go a long way when paying off your mortgage. Even so, we are not going to worry about paying it off faster right now.


We want to load up our retirement and college savings first. I am fairly confident that we’ll be able to earn more than 2.875% on those other accounts. Also, with our Roth IRAs, we are limited to how much we can contribute each year.

I want to make sure we’re contributing as much as we can to those before worrying about our low-interest mortgage.

I suppose I could round up the payment and call it $900 instead of $890. That indeed would have a modest impact — it would cut 2 months off our loan and save $442 in interest.

We may want to accelerate our mortgage payoff at some point, or even save up and pay it off in one big payment ahead of that 15-year mark. I’m not going to worry about that right now.

I’m going to maximize this cheap loan and improve our net worth in other areas.

For more, check out this post I wrote in 2009 (waaay before buying a house) about not paying extra on the mortgage.

How about you? Shopping around a refinance?

Posted under Uncategorized | 11 Comments »

11 Responses to “Closing on our refinance today! Could be a $250k+ net worth gain.”

  1. Congratulations!! We are in the process of refinancing also. Never did we think interest rates would be this low!

  2. Congrats! We are starting to look in refinancing, but I don’t really know where to start, other than our current lender. How did you search around to find legit deals?

  3. I did start with our 1st lender since I already was familiar with them. I asked for the day’s rates for 15 and 30 year loans, and also rough closing costs for my loan balance. That was my starting point and price to beat.

    I then looked at’s mortgage rate tool to search for lenders in my area that had better deals going.

    I remembered my parents refinanced a few years prior, and asked for more details. Turns out, they had found one of the best deals in town. I went with their same lender (Union Savings Bank, for you Indiana/Ohio/KY residents

    Might ask people you know in the area if they’ve refinanced recently, and if they’d recommend their company? It really is overwhelming to sort through that, but it’s usually worth it!

  4. We just closed yesterday. We opted for a 20 year loan at 3.5% with no closing costs (they weren’t rolled in either – when our lender sells the loan they get paid). We will save over $100K in interest alone over what we had been paying, I think. I should do the exact math like you did to see the true beneftis.

  5. Yay Kacie – thanks for the tip! We refinanced a couple years ago….forwarding this post to hubby for us to take another look for a possible update! I hope and pray all is well with you! Hugs, Tracey

  6. After reading your blog, I couldn’t help but notice you evaluated your options very closely. I too was looking to refinance a home, where our interst rate of 4.75 for 30 yrs to a lowere rate. We looked into 3 different loans, a 30,20 and 15 yr loan. Based on the interst rate and best possible approach it was determine to go with the 20 yr note at 3.25%.

    However I did a little more number crunching and with the additional amount ( in your case the differernce between 890-668 approx $230 my case an additonal $300). I discovered if i just put the extra amount toward principle that I would be saving more in interest and paying home off in approx 14 years by adding the additional amount towards priciple, hence refinancing didnt make sense. After explaining this to the broker they also ran the numbers and said were spot on.

    So for those of you considering refinance, just word of advice make sure you run the numbers every which way you can especially one where you will be adding the additional monthly amount to your current payment and see what those number will be.

    I would be happy to run anyone’s numbers to provide them a detailed comparison with their particular situation.


  7. I ran your current numbers and some thing you may not have notices. If you put an additional 260.10 /month toward pricnciple with out refinancing in your particular situaion:

    108,776.86 interest as you stated and a total $240,776.85 for 360 months but when I ran your numbers where you add the additional amount per month to principle here is what you will get your home will be paid off in 204 months and total interst saved is $56,902 with total payments of $188,902.30 with a total savings of $51,874.55. That isn’t even adding the additional 260 per month difference that you would be adding to your payment if you did refi.

    Hope this helps with your decision.

  8. I want to apologize for the poor writing/english on above comment. . .I was on an iPad when posting.

  9. Hi Jeff,

    You’re a kindred spirit! I love running numbers on these sorts of things.

    I think the huge key with considering a refi is looking at where you are in the amortization. We were only 12 months in…but if someone had been in their house for several years, it may not be worth refinancing (but it’s always worth running the numbers).

    So, I put your suggested amount of $260 extra in my spreadsheet and got close to your numbers — a $928/monthly payment total, paid off around month 210 with $59k in interest.

    This option isn’t nearly as good as my refinance and here’s why:

    My monthly payment of $928 is $38/month more cash out of my pocket than my refi. ($456/year more)

    Further, I pay $191k total in this scenario, and looking like $30k more in interest.

    It also takes me almost 2 years longer to be done with the loan than the refi.

    So, just paying extra would keep things flexible, but I’d have to pay more per month and my savings wouldn’t be as great.

    Do you agree with my analysis? Here’s a post awhile back where I considered paying extra. At the time, the refi closing costs and rate I found was much higher than what I ended up going with:

  10. Kacie,
    Thanks for the kind words, however I want to make sure I understand what exactly your looking at. I am a numbers guy and understand it (I would say better than most).

    So in Your case you have currently 29 yrs, left on a 30 yr note at 4.5% and a payment of $668.82 with a $132,000 balance and you put $260.10 extra toward principle each month.

    You want to refi at no closing costs
    New loan: $890.30/month. 2.875% fixed for 15 years. Starting loan balance: $130,050.

    My first question is how to you get a loan for $130,050 when you have a balance of $132,000

    Remember we need to be able to compare apples to apples

    My 2nd question if you have 668.82 + 260.10 to put toward your principle. That would mean you have $928.92,. If this is correct then I will run the numbers for you so let me know ok

    Another way to look at it is 890.30-668.82 =$221.48 extra to principle on your current mortgage.

  11. Ok assuming no up front closing costs and you not minding increasing your monthly payments an additional mandatory 221.48, then you would be 2.67 yrs better than not refinancing.

    Mind you this locks your P and I to a mandatory 890.30 with out the flexibility if needed. So I will agree with you no closing costs the refi is the best option.

    However I can provide you with a little better advice if you have more debt than just your mortgage, which most of us do. Anyway if your intersted I will be more than happy to provide some guidance.


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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

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