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All opinions are my own and were not influenced by any parties.
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Around seven years ago, my husband had this great idea to help us not only pay off our home sooner but save us thousands in interest over the life of our loan. Of course, my curiosity was instantly piqued and so I asked him how he planned on doing that.
The first thing he told me was that interest rates were really good. He also said he had already done all sorts of homework and that he thought we should not only refinance but change the term of our loan.
All I remember next was hearing “our monthly payment will go up by a few hundred dollars.”
My gut instinct was that I thought he was nuts. Why would we want to pay more? Fortunately, that lasted only a moment and I realized that we could not only pay off our home much sooner, but he was right that we’d save a LOT over the life of our loan.
We didn’t just jump in and make a call or sign up through a random website. We did our homework. Although it sounded great in theory, we wanted to make sure it really was the right financial decision for us.
SHOULD YOU REFINANCE?
This was the first question we both had. Sure, we knew rates were lower, but we also knew there was a lot that went into deciding if we really should refinance or not.
First off, we sat down and looked at our goals together. We had already worked hard to pay off more than $37,000 in debt and knew that we really, really wanted to get rid of our mortgage as well. Rather than taking another 20+ years (at a higher interest rate), we both thought that paying it off in 15 years or less made much more sense. That would allow us to be mortgage free before our kids were out of high school.
The next thing we did was look at the interest rates. That can be extremely confusing! In hindsight, I wish we had something like the LendingTree LoanExplorer tool. You can use this to compare the current rate to real-time rates from competing lenders, ensuring you get the lowest rate.
For us, seeing that we would save more than 3% on our interest rate made the idea of refinancing even more appealing. However, the interest rate was not the only thing we looked at.
Once we knew that we could get a rate we both liked, we had determined if this entire process was going to be affordable. Like I said, we both thought about changing our loan terms from 30 years to 15 may make sense. But, we had to know it would work into our budget. Using an effective online loan calculator can help you figure this out.
I still remember using one that we found on LendingTree (because it was one of the best ones we found). We entered all our information into the form, including our loan amount, interest rate and payments. It helped us understand if we would save money by refinancing – or if it would cost us more. That was invaluable in helping us know that we needed to refinance.
After running through all the questions and calculators, we both agreed that refinancing was the right decision for us. Our payment would increase by around $400 a month, but we would save not only years but also thousands in interest payments.
THE NEXT STEP
After we decided refinancing our mortgage made good financial sense, we didn’t rush to confirm everything with our lender. We researched our credit to make sure everything looked good as we did not want any surprises!
Once that looked good, we reached out to our lender and locked in our rate. We had decided to use a local credit union, as they had the lowest rate and fees. Not only that but being local made it even more appealing to us as we like to support our community when we can.
One thing that our lender asked us about was taking out any additional money to pay off any loans, home improvements or for another reason. This was not a good decision for us, as we had already paid off our debt and our ultimate goal was to be debt free. Increasing the amount we owed did not work for us. (But, it may be an option for your situation).
Since refinancing, we’ve continued to apply additional payments to our mortgage each month. Not having debt hanging over our heads has allowed us to do that without little strain on our monthly budget. We have now paid off more than 60% of the original loan amount and are on track to have it paid in full in around 5 more years — right before our oldest graduates from high school!
If you are considering refinancing for any reason, make sure it is right for you. LendingTree offers the free tools and resources you need, so you know that you are making a wise financial decision.