Living in a small town in a very rural area, wages are not great & job options are limited. At the same time, we are close to a fancy ski resort area, so our property values are actually pretty darn high compared to most rural areas in the country. We always say we’re paying for the views and plethora of outdoor activities available in our area, not the size of our homes. 🙂 The header on this blog was taken on my walk around town, looking back towards town. Yep, that’s my view!
At any rate, 4.5 years ago, in the midst of TTC hell, Charlie and I were able to buy a small 1,400 sq. ft. home in town that had a great backyard and was within walking distance of everything. At the time we had a 30 year fixed FHA loan, and thanks to Infertility costs draining our savings, it was all we could do to swing that 3.5% down payment and closing costs on a short sale purchase (roughly $20k). We were happy to have managed to get into the housing market here though, so it was worth it.
This past summer we started talking about refinancing to try to save some money since interest rates were so low, and when I contacted a local mortgage lender who was a friend of mine when I worked in real estate, he confirmed that now was a great time to do it because rates were low and thanks to the market coming back and the improvements we’ve done to the property, would could break that 80/20 equity mark (our house appraised at $313k) so we could finally drop the Private Mortgage Insurance (PMI) payment. I asked him to look into a new 30 year fixed conventional loan, and he went ahead and sent me the breakdown for a new 15 year fixed conventional term loan as well. Thank God!
These numbers are fascinating to me, so I’m going to share them with you today, just because I hope it inspires someone else out there to question their current payments and try to get a better deal, be it for a $100,000 home or a $1,000,000 home! I’ve rounded things a bit just to make it easier to follow.
- Current $255k FHA loan @ 4.875% interest: $1,600/mo – $486k ($83k already paid)
- In 52 payments totaling $83k, we have paid down only $17k of principal. Interest is a beast!
- New $240k 30 yr term conventional loan @ 4.25% interest: $1320/mo – $423k
- This would cost us an extra $20k overall, but would save us $280/month for the next 30 years
- New $240k 15 yr term conventional loan @ 3.5% interest: $1880.00/mo – $308k
- This would save us $96k overall, but would cost us an extra $280/month
- Out of pocket closing costs: $1,600 (settlement charges were $3,600, but some of that got rolled into the new loan)
So yeah, even though we went into this process thinking we’d try to save on our monthly payments, once we looked at those fully amortized amounts, it was clear to us that we were crazy not to try to swing the 15 year loan in order to save ourselves nearly $100 grand. Also, OUR HOUSE WILL BE PAID OFF BEFORE OUR KIDS GRADUATE. #HFS! Even the idea of that is insane to me, and SO so cool.
We have been trying to follow some of Dave Ramsey’s teachings, and I know we’re doing this a little out of order according to him, but with interest rates where they were, we needed to jump on this now. Here are his recommendations:
- $1,000 to start an emergency fund (<– DONE)
- Pay off all debt using the debt snowball ( <– DONE. I actually just paid off my student loans yesterday!!!!)
- We do have an existing loan for Charlie’s company that we are working on, but that will be paid off in 2.5 years & we are currently paying more than the minimum in order to avoid a balloon payment at the end. I consider that a separate thing because it has to do with his business income, which is pretty much a side/supplemental thing lately in addition to the full time work he has been doing for a different company.
- 3 to 6 months of living expenses in savings <– This is what we need to start working on. Our savings is abysmal right now.
- Invest 15% of household income into ROTH IRAs and pre-tax retirement <– I’ve put $125/mo into my ROTH since I was 19 years old and never increased that amount. Neither of us work for employers that offer 401ks or anything either, so once we get some living expenses in savings, we will definitely need to start addressing this!
- College funding for children <– NOPE. After talking to my sister (who works at a D1 university), this is actually LOWEST on my list because of the way those savings are penalized when scholarships and grants are being distributed. I’ll go into this more at a later time. We do have 529 Accounts sent up for both kids that I have been putting money into, but I’ve now dropped those monthly amounts to the minimum ($15/mo each) while we focus our extra money on savings & the new slightly higher mortgage amount.
- Pay off home early <– working on that! I’d say a 15 yr loan instead of a 30 yr loan is a great start!
- Build wealth and give! <– I can’t wait to get to this point. 🙂
So yeah, it’s been a huge financial week in our lives, and I hope and pray this was the right decision and we are well on our way to owning our home free & clear and being debt free!
What have you done with your mortgage? Did you try to save up more to put more down at time of purchase or just go for it when you could hit the minimum like we did? Did you have a “starter” home first or go straight to your forever home? Did you do a 15 yr or 30 yr loan? I find all of this stuff so fascinating because there are so many variables that can affect what is the best option for you!