When the path to a financial goal changes

As you may have read, I am in the process of refinancing my home to a 15 year mortgage. I submitted what seems like 1000 documents to the bank. Finally, I got conditionally approved. I also got the appraisal done pretty quickly, in about a week from the initial phone call to receiving the appraisal, but this is where a problem occurred. My home appraisal came in lower than what I originally bought the home for a few months ago. 

This was obviously incorrect, but I need to prepare for the worst case, where it prevents me from being able to complete the refinancing. If I can't get the appraisal corrected, what should I do? I thought about this question a lot. This refinancing was to reach my goal of paying my home off early and with little interest. I have to remember this goal when I'm figuring out what to do next. What could I do next to make sure I can reach my goal just as quickly as before.

My first consideration was to just pay my mortgage I have now like it's a 15 year. This would be a good step toward my goal, but it doesn't completely achieve it. This solution forgets to consider the interest part. If I paid my 30 year mortgage as a 15, I would pay about $180,000 in interest. This is a big improvement over the $420,000 of interest for a 30 year. However, comparing it to the refinancing terms, it's about $50,000 more. So, in other words, if I were to refinance, I would only pay about $125,000 in interest. I'm not happy about this difference. Also, my monthly payments would be significantly more with this plan. After refinancing, my PMI would drop about $75 per month. Also, the overall payment would drop. Paying my 30 like a 15, I would have to pay about $4100 per month. If I were to just refinance to a 15, the payment would be about $3800 per month. Obviously, this solution isn't the best.

Another consideration I had was to go with the previous option, but try to cover some of the extra costs. My first thought was to rent my basement, but the problem is I don't have a bathroom down there. Another problem with this solution is my laundry room is also in the basement, so I would need to figure out a way that could still be accessible, while keeping the rented space separate. I think the renovations that this option requires would be too much money and effort. I also think it would devalue the home (maybe this is what the appraisal was trying to predict lol!). 

This is kind of another consideration, but related to the last. I could also cover some of the costs through investing in dividend stocks. I have a few dividend stocks that I invested in primarily because they pay out somewhere between 10-12% in dividends per year. If I wanted to truly treat my 30 year mortgage like a 15, on the new refinancing terms, I would need to lower my monthly payment from about $4100 to $3800, about a $300 difference. Yearly, I would need about $3,600. To get $3,600 per year, I would need to invest about $40,000. This would give me estimated $3,600 per year, after taxes. This is a solid option, but not completely doable. I don't have $40,000 available to invest, first off. Also, in a way I'm using the $3,600 extra per year for the extra interest I need to pay, since I wasn't able to refinance to a 15 year. I would rather use that $3,600 on something else, like a nice vacation with my wife. 

The last option I've considered was to just reset. I'll give it a month or two. This gives me time to build up a little more equity in my home. I could also get a different appraiser, that could more accurately price my home. The rates might be different, but this doesn't necessarily mean they'll be bad. There's a chance that they could be better than now and a lot of analysts think they will be. I'm out $500, but I got an offer in the mail yesterday where if I switched banks to citizens bank, they would give me $500. So, then I would be back to even. My credit score might be affected, but I really don't care about my credit that much. After my mortgage is done, I won't have a credit score anymore.

With all things considered, my first priority is to try to get my refinancing to go through. The lower appraisal doesn't affect my net worth, but just forces me to tie up more money than I would like in my home. It would drain my accounts, but only for a little bit. I'm not happy to be in this situation and I'm not exactly sure what I'm going to do yet, but I'm working hard to figure it out and I think I have some good options. 

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Maybe you have an idea about what I could do? I would love to hear from you, you just need to message me! I'm thankful you took the time to read Better Budget. I hope you enjoyed this post. If you have any questions at all, or want some help reaching your own goals, please reach out to me! I really want to help you with your personal finances.