Refinancing has immediately increased my net worth. I expected my net worth to have gone down about $1000 at first, before eventually recouping the loss over the following months. This wasn’t the case, to my surprise. To understand how this happened, let’s back up just a little bit.
Refinance from a 30 to a 15, take the credit
About a month ago, I and my wife decided to refinance our mortgage from a 30 year to a 15 year. Our goal was to get through the refinancing with as little cost as possible. So, we elected not to pay for any points. Actually, we decided to take a higher rate to get some credit toward the closing costs. Long term, the difference between par (the rate without points/credits) and the rate with some credit was small. It was even smaller 5 years out, which we considered because there’s a good chance we won’t be in this house by then.
Understand disposable closing costs
So, we had about $2000 credits, which covered almost all the disposable closing costs, like the appraisal fee, title transfer fee, etc. Basically, it covered almost all costs that we wouldn’t get back. There was about $5000 that had to go to escrow, but we would get the money in our current escrow account back. So, this cancelled out. At this point, we only have to pay about $500 of disposable closing costs.
Buy down the loan if needed
The last part of the closing costs was to buy down my loan. My original mortgage was a 3% first time home buyer’s loan (again, I don’t recommend 3% down, but we’re all learning). However, to refinance, you need 5% down. So, I had to buy down my loan by roughly 2%, which I estimated to be about $6000. However, this is where my refinancing almost fell through.
The appraiser appraised my home lower than what I originally bought it. This was a problem because I expected my home value to increase about $5000-$10000, which would have given me 5% equity without having to buy down my loan. Since it appraised lower, I had to bring even more money to the table. More money that what I was comfortable with.
Work with a reputable mortgage company
Thankfully, I was working with an incredible mortgage company, Better Mortgage (funny the name is so similar to Better Budget, but there’s no relationship). I simply told them that I couldn’t afford bringing that much money to the table. Even though it all would go toward equity and wouldn’t affect my net worth, it would cause my bank accounts to be way to low. In other words, it was too risky for my wife and I to make that sort of payment. Again, I was working with an incredible mortgage company. They gave me the max credits to help, $4999! They couldn’t give any more than that, but that was more than enough. Because they were so generous, and my net worth actually increased $1000 because of it!
Refinancing is a great idea if you’re on a 30 year mortgage. Take that 30 to a 15 and increase your net worth faster. If you have any questions about refinancing, please ask me. I’ll help you get started and give you any recommendations I may have!
Thanks for reading Better Budget. I hope this blog post will help you figure out how you could refinance a 30 year to a 15 year and increase your net worth at the same time. Even if you don't have a home, you can learn from this, so you can make the right decision when you buy one some day. As always, keep improving and getting better at your personal finances. Let me know if you have any questions!
Better Budget Co
Your guide to all things personal finance. We're big fans of goal getting budgets, debt fee living, and a good cappuccino.
My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
Ask anonymously or leave your name! I'll answer anonymous questions in the next blog post.
Better Budget Co (TM)
Copyright © 2019