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Courtesy Katie Oelker
- We moved into a new house in November 2019 with an at the time pretty low rate.
- A year later, rates were down even further, and we realized we could save long-term by refinancing.
- We're coming up on the break-even point, and long-term, we'll save over $63,000.
In 2019, after having our second child, my husband and I had decided it was time to move. Although we were on track to paying off our first home's mortgage early, we knew we would be happier with a larger home for our growing family. One of our main priorities was to have enough room to entertain our family and friends, and we needed more space to make that happen.
So after a year and a half of searching, we found the perfect place. It came with three bedrooms on one floor, an open floor plan, and an in-ground swimming pool with a big enough backyard around it. We had saved enough money to make a small down payment without selling our first home (which we eventually did sell) and made an offer.
Our offer was chosen, and we were ecstatic! Interest rates at the time were considered low, and we locked in a 30-year fixed-rate mortgage at 3.875% in November 2019.
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We could break even on a refinance after 4 years
We moved in right before Thanksgiving and spent the next year making our house feel like a home. After the COVID-19 pandemic started, rates began to fall, and in the winter of 2020, we started to consider refinancing our home.
While it felt like we had just purchased our home, interest rates had dropped enough that it made sense for us to refinance. Although we already had a low rate, our mortgage broker informed us that if we stayed in our home for just four years, the closing costs would equal out, and we would break even.
After this time, the savings on our mortgage going forward would outweigh what we would pay in refinancing closing costs. Each month spent in the home after that would equate to monthly savings, saving us thousands of dollars over our 30-year mortgage. So in February 2021, we closed on our new mortgage at 2.875%. This change saved us $176 a month. While that may not seem like much, that adds up to $2,112 a year. Multiply that over 30 years, and that will save us $63,360.
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We made the right call with our refinance
This November, we are now coming up on four years of buying our home, and we made the right decision, as we have no intention of leaving anytime soon. Although refinancing shortly after purchasing a home can seem silly, mainly because you have to pay closing costs on the new mortgage, it can still make sense in the long run.
My husband and I also considered refinancing as an option on our first home's mortgage due to unexpected medical debt we acquired. Although we didn't go through with it, it did give us the option that would have allowed us to pay off the medical debt, reducing our financial stress at the time.
When considering refinancing, be sure to run the numbers to find out if it makes sense. Working with a trusted mortgage broker who can guide you through decision-making is also advised. Be sure to understand what the new rate will save you, how much the closing costs are, and when the savings will outweigh the cost of refinancing. If using refinancing to take equity out of your home for debt payoff, determine if the savings in interest will pay off in the long run. Although we didn't refinance to pay off debt, it still made sense to do it soon after purchasing our home. For others, it may not.
Refinancing a home takes time, effort, and money. While it's common to refinance when rates have dropped significantly lower than your current rate on a mortgage, it's best to do your research to be sure the savings work out in your favor.