Our New Mortgage
We’ve been tying up loose ends all week, getting ready to sell our current house and buy our new home. Our closing is set for Friday morning, and then the closing on the new house is on Monday. It feels like we’re never going to get everything packed up and moved out of her by Saturday, but I suppose we will.
We’ve got our final numbers on both sales now. We’ll net just over $42,000 from the sale of our house, and we need to show up at closing for the new house with about $45,000. So that works out just about perfectly. We decided to go with a 15 year mortgage on the new house, and we got a rate of 4.625%. The shorter loan term means that our monthly payments will be about $300 higher than our current mortgage payment. We debated for a while on that decision, but in the end the lower interest rate won us over. The HOA dues at the new house are only $50/year, as opposed to the $80/month that we pay now. So that reduces the difference in mortgage payments down to about $225/month. And for the last several years, we’ve made additional payments on our mortgage, ranging from $100 to $1000. So we feel comfortable with the slightly higher payment, given the lower interest rate and the shorter loan term that we’re getting in trade. We don’t have any debt other than the mortgage, which helped make the decision a little easier.
We’re going to focus on our emergency savings account for a while, just in case. But given the relatively small difference in mortgage payments, it was worth it to us to go with the 15 year loan. Our goal is to pay off the mortgage in about seven years, so for now we intend to pay quite a bit more than the required payment each month. But we feel confident that even if our job situation were to change, we could handle the new payments without too much stress.
I don’t know many people with 15 year mortgages. Have any of you opted for higher monthly payments in trade for a lower interest rate and shorter term? Are you glad you did, or do you wish you had taken out a 30 year loan?
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On Jan 15, 09, I received an email from my bank advertising home equity loans at 4.99% with no prepayment penalties, no points and no closing costs. I applied immediately and was approved by the end of the day. Our original loan was also 15 years, but at 5.75%. Instead of taking a lower payment, we are continuing to make payments at our original rate and we will pay the house off before the 15 years are up.
Congrats on you new house!
Years ago we opted to go to a 15 year mortgage from a 30. It was the smartest move we ever made. We quickly adjusted to the increased payment, knowing that in the long run we would save thousands of dollars. Actually, we were able to pay off the mortgage even sooner and this has helped my husband and I to retire early (still in our 50s). And no, we are not rich types; never broke into six figure territory. Just lived frugally, had a few good breaks and made wise choices.
Great topic…one I’m very interested in right now as we get closer to building our house. I have been considering a 15-year mortgage, as well.
We seriously considered a 15-year mortgage when buying our house almost two years ago, but the best interest rate at the time was a state program we qualified for with a 30 year mortgage (and no early-payoff penalty). Our solution? Get the lowest interest rate, and pay at a 15 year rate, with room to go back to the 30 year rate when circumstances require it.
wow, a 15 year mortgage! That soudnds pretty fantastic. My partner and I won’t be looking to buy for 3-5 years, but when we do – I hope that’s a route we can take.
Although even with this recession, homes still sell for $300,000 plus for a decent fixer upper – which is pretty rediculous.
Wow! That is so awesome that everything is working out so wonderfully! We don’t have a 15 year mortgage. In fact, we are fighting to get into a 30 year fixed right now. We are the first to admit that we probably never should have been given a mortgage 4 years ago when we bought our house. Mind you I have never in my life failed to make a payment on anything or even paid something late, but still, we were – not victims – but we dealt with a more liberal lender, which we regret now. Live and learn I guess. Anyway, I am amazed when I see the small difference in monthly payments on a 15 vs 30 year. It really shows how much you end up paying in interest!
Good luck with the move. I always find packing to be a good time to go through and clear out things you really don’t need, although it sounds like you do that pretty often anyway.
it’s great that it is all working out ! we don’t own a home but when we finally do we will definitely go for the 15-year option. it surprises me more people don’t go this route granted that for $300-500 a month or so you could halve the time in which you pay off your home.
We are in a 30 right now. It’s what made sense to us, since we’ll only be here another 3-4 years. The next one should be a 15 year.
We actually wanted a 15 year mortgage but the interest rate was lower for the 30 year – due to some special FHA community investment program that we qualified for. So we got the 30 year but plan on paying it in less than 15 for sure. After the emergency fund is built up all extra money will be funneled to house payments.
15 years is a much better plan, I think. 30 years is just so long! My parents are still paying off their 30 year mortgage from the 1986! (Yes, I know most people move before paying it off, but they didn’t and it’s scary to think that after raising two kids and retiring they don’t really own their house yet…)
We are in the middle refinancing our mortgage and chose a 30-year mortgage because it actually had a lower interest rate (not sure why that is). We would have gone with the 15 if it had a lower interest rate but since it didn’t we will pay extra every month to bring down the principal. There is no prepayment penalty but I’m guessing we’ll move before we would pay off the house so that shouldn’t be that big of an issue.
Wow, you got an awesome rate! And you didn’t even have to stick it to anyone.
We thought about doing a 15 yr. but wanted the flexibility of payments if we have a baby anytime soon. Plus, the rate was the same so it really didn’t make a difference.
My husband chose a 15-year mortgage when he bought our house a couple of years before we met. Luckily, I love the house and we plan on staying here. It’s really neat to think that I’m 29 years old and our house will be paid off in a MAXIMUM of 9 years! So, I will be mortgage-free before I’m 40!
It makes for a great incentive to stay in our house. Sometimes, I’ll see a neat looking house for sale and be tempted to “trade up”. Then, I remember how close we are to having our mortgage paid off and I decide I’m perfectly happy where I’m at.
I definitely don’t think you’ll regret this decision
We chose the 30 yr option last year instead of the 15yr (which we wanted!) because of flexibility. With our 30 yr, when we can afford to, we pay enough extra to put it up at a 15yr rate…. but now that I lost my job, we are thankful we don’t HAVE to continue to pay more. We can go back to our lower 30 yr payments as needed in times of hardship, or to pay for roofing or what-have-you. And when I am working again- we can restart our accelerated payments again. I would rather have that option than be locked in at something higher. Just because you have a 30yr loan doesn’t mean it has to take 30 yrs to pay it off. But you have some wiggle room for life’s emergencies and the unexpected. And that way we never have to take a HELOC, or borrow from our emergency funds as much…. we just decrease our mortgage payments.
We’re trying to refinance our 30 yr mortgage to a 15 yr with a slightly higher rate than what you got. We’ll be paying $300 more each month too but I think it’s worth it knowing that the house will be paid off a few years before our first born goes to college.
I’ve never had a 15 year mortgage, but my aunt and uncle got when when they refinanced their house. This was ages ago, of course. But they refi-ed and got the shorter mortgage. Then they scrimped and saved and threw all their extra money at it. At some points, they were making triple payments, I think. (Of course, the house cost probably $100,000 or less so triple payments were more possible.)
Flash forward to about three years ago (maybe five?) and their house is completely paid off! They were in their late 40s and owned the house outright. (Which is good, because a year or two later, they needed a new roof! They had the money for that fix with very little worry on their part.) Now they only have to deal with taxes and can each work part-time.
I don’t believe in 30 year loans although some would not be able to afford to buy a house without them. I absolutely agree with your strategy for a lower interest loan, especially if that is your only debt with slightly higher payements. Calculate how old you will be in 15 years and that is 100% dept free time! I don’t want to be collecting pension and making mortgage payments at the same time. Good choice. Thrifty hubby and I went with a line of credit prime plus 1% but we are also able to lock into a regular mortgage at any time. We did so as hubby is straight commission sales and sometimes large paychecks mean an instant paydown of the mortgage.
[...] up moving themselves, but it worked out well in the end! Frugal Babe got an awesome rate on her new mortgage for their new house. J Money at Budgets are Sexy talks about living like you’re broke. [...]
One thing I learned the last time we refinanced is that you can get a mortgate for just about any term you want – you don’t have to get a 15 or 30. We were comfortable with the amount of our payment but wanted to take advantage of the lower interest rates, and found that we could get a 20 year mortgage (at the same interest rate as a 30 year one) that would give us almost the same mortgage payment as we had had before.
Unfortunately the 15 year payments were just a bit too much of a stretch at the time.
As we’ve been able we’ve thrown more money at the principal as well, so we’re down to about 11 years left. Makes me really happy that we didn’t just reset the clock and go for another 30 year mortgage as it could have been so easy to do at the time…
Very smart move. Choosing a 15 year loan over a 30 year loan saves thousands of dollars over the years. The extra $300 a month you are paying is going to be a drop in the bucket compared to what you will save. Congratulations on your goal of paying it off in 7 years too.
We started out with a 30-year, after a few years we had saved up enough to refinance into a 15-year, which we ultimately paid off in 7 years. If you can afford the higher monthly payment, definitely do it. Better than giving the money to the bank in interest.
I’m thinking about you and hoping everything is going well!
Question, for those of you who choose the lower/same interest rate on the 30 years option did you look at the total amount of interest paid? I asked I just did a quick calculation over at Bankrate for how much total interest paid on a 30 yr. vs. 15 yr. $100,000 loan using 4.875 as the interest rate. The total amount of interest on the 30 yr is more than double. $90,000 vs. $41,000.