After four intense months, I finally managed to refinance the mortgage on my primary residence. It was undoubtedly the toughest refinance I’ve ever done, especially with mortgage rates on the rise again, making the process increasingly challenging for many.
Originally, I had a 5/1 ARM at 2.5%, which started on August 1, 2014, and was set to reset to 4.5% on August 1, 2019. The loan amount was $990,000 with monthly payments of $3,920. I’ve now switched to a 7/1 ARM at 2.625% with a new loan amount of $700,711, and my monthly payments have dropped to $2,814.41. This change improves my monthly cash flow by $1,105.59, which is helpful as I navigate new expenses like preschool and healthcare.
My goal is ambitious: I want to completely pay off our primary residence by October 1, 2026, and I’m determined never to deal with another mortgage again. I’d only consider refinancing if rates dropped by another 0.5%.
This refinance journey was fraught with delays, misunderstandings with an unfamiliar lender, and frustrations with a very snippy title officer. Despite the hurdles, it’s finished, and I’ve learned several valuable lessons that might help others.
The Impact of Low Interest Rates
Low rates significantly affect the dynamics of a mortgage. They not only improve monthly cash flow but also increase the portion of payments going toward the principal rather than interest. For example, if my rate were still at 4.5%, $2,628 of my $3,550 payment, or 74%, would be going toward interest. With my new rate, 46% of my payment goes toward the principal right from the start, which is excellent compared to the usual early years of a mortgage where most of the payment covers interest.
Stringent Lending Standards
Both Citibank and Wells Fargo required a credit score of 800+ for their best rates, a jump from the 760+ required back in 2014. The stringent checks and hefty documentation these banks demanded felt like being vetted by the FBI, but it reassured me about the thoroughness of their processes.
The Challenge with Title Officers
The weekend before closing, I noticed the title company had mistakenly added an additional charge of $9,662.43, which didn’t add up since my monthly payment had reset to $3,970. After a frustrating back-and-forth, where I had to correct their error of double-counting a month’s interest that I had already paid, the payoff at closing was adjusted down by $4,551.26 to $5,111.17.
The Reality of No-Cost Refinance
Even though my refinance was labeled “no-cost,” I still ended up writing a check for $5,111.17 at closing. This scenario is common and often misunderstood. The costs, while not upfront, are typically rolled into the loan in various ways, such as through higher interest rates or added to the loan balance.
Caution Against Big Financial Changes During Refinancing
It’s crucial not to make significant financial changes during the refinancing process. Any major purchases, changes in employment, or even large deposits can trigger additional scrutiny or delay the process.
Final Thoughts
Refinancing can provide significant financial relief and flexibility, but it’s not without its challenges and complexities. It’s vital to understand all aspects of your refinancing agreement and to keep a close eye on the details, especially the fees and the final numbers at closing.
This ordeal was not just a financial journey but a learning experience that underscored the importance of vigilance, understanding, and sometimes, patience, in managing personal finances.
