- My husband and I decided not to sell our home even though it’s risen in value. We refinanced instead.
- We went from a 4.25% interest rate to 2.99%, saving about $500 a month and thousands in interest.
- By putting that $500 a month towards our retirement, we’re on track to meet our $2.2 million goal.
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As in much of the nation, the housing market in our area is hot. In fact, our house has increased nearly 50% in value in the three years since we bought it. Plus, interest rates are significantly lower now than when we purchased our home in 2018. While we don’t have any plans to move, we wanted to somehow take advantage of the housing boom while we could.
That’s when my husband and I started to think about refinancing our mortgage. Originally, I shied away from the idea. Isn’t this something people do who can’t afford their monthly mortgage payments? Is this taking a step backward? Is it really worth it? But after speaking to our financial advisor and running the numbers, we decided to take the plunge.
What the numbers told us
While I wasn’t initially sold on refinancing, my perspective changed pretty dramatically once I saw the numbers. Our original interest rate was 4.25%, and our monthly mortgage payment was $2,508. After refinancing, our interest rate dipped to an impressive 2.99% and our new monthly payment is now $2,082.
This meant we would save around $500 a month just on our mortgage payments alone, not to mention the thousands in savings we’ll enjoy on interest over the term of our mortgage. We could have gotten a 15-year mortgage and paid even less in interest over time, but we opted for another 30-year one so we could allocate the extra monthly funds to our retirement savings.
Other perks? We were only three years into our previous mortgage, which meant that essentially “starting over” with a new one wasn’t that big of a hit. We also skipped a month of mortgage payments, since, after closing, your first payment isn’t due until the next month. That money was allocated to partially fund a home project that’s been on my to-do list forever. (Hello, custom built-ins in our family room!)
And we aren’t alone in our refinancing decision. Research has shown that 68% of all mortgage applications in August were refinancing applications, while mortgage lenders refinanced about $2.6 trillion in 2020 alone.
How the decision affects our retirement plans
During the refinancing process — which can be a bit lengthy, to be fair — I was shocked to see that our retirement savings plan was now 99% on track with just that…
Read More: How Refinancing Our Mortgage Is Helping Us Reach Our Retirement Goal