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May 7, 2012
Last February when my girlfriend and I went out to lunch, she told me that she’d just refinanced her house. My curiosity was piqued. Over tostadas, she explained the process, and it didn’t sound as intimidating as I’d imagined. In the past, I’d put off looking into refinancing because I thought the process would be complex, time-consuming, and expensive. But my friend debunked my misconceptions. With her encouragement, I decided to look into it.
I’m so glad I did.
I took notes on the experience thinking that maybe I could help some of you. With so many of us struggling in these tough economic times, making wise decisions about money can be critical. Here’s what I learned.
First, the process isn’t complex or time-consuming. I kept track of every minute I spent on refinancing, and the grand total was less than five hours—four hours and twenty-two minutes, to be precise. I didn’t count the time I spent driving to and from the mortgage lender because I usually combined this with other errands. I also didn’t count the time I took to give my house and yard a thorough sprucing up before the appraiser came. I figured that I needed to do a spring cleaning anyway, so all I did was get a head start on the project. Always a plus.
Second, refinancing isn’t expensive. The lender folded the cost of refinancing (just over $2000) into the loan so that we didn’t pay anything up front. In less than two years, we will recoup this cost because our new house payment is $90 less a month. We took out a 15-year fixed mortgage at 3.25% interest and shaved several years off the life of the loan. Interest rates are at an historic low right now and won’t continue to be this low forever. The interest on our former 30-year fixed mortgage was more than twice as high.
All in all, I figured that we will have earned $18,000 in five years and five hours. The five hours (or less) is the time it took to do the refinancing. The $18,000 is the amount we will have saved in five years by refinancing. This isn’t a small chunk of change.
Does it make sense for you to refinance? It might. Everyone’s situation is unique, of course. If you’re planning to sell your house in the next couple of years, refinancing probably doesn’t make sense for you. But if you’re planning to stay in your current house for two years or longer, then it probably does make sense.
I can’t take you all out to lunch, though I wish I could, but I can pass forward the good deed my friend did for me by telling you about my refinancing experience. Check into it. You might find that it’s well worth the effort.
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