Wednesday, April 01, 2009

Balloon or no Ballon, Refinancing your House might be worth it

I just finished refinnancing my house and it turned out quite well. The main reason that I did it was that I was on a 7 year ballloon that was coming up next year. For those of you that are as lacking in knowledge of mortgages and financing as myself that basically means that I took a lower interest rate but agreed that the rate could change after 7 years. So I wanted to redo the loan so I wouldn't be surprised by any shocking new interest rate next year.

In any event I found out that refinancing produced quite a few benefits for me and was probably worth doing at this point even if I hadn't felt the need to because of the balloon:

- It slightly lowered my monthly payment
- I get to skip a payment for the month of April
- It reduced the length of my remaining loan from 24 to 20 years
- I received an extra $1,500 or so back in the mail

Now in my case my banker said that part of the problem was that my taxes had been increased significantly, forcing the escrow to get a little messy, and that was costing me money. Additionally, I had others tell me it was because my "new loan" was for less money, but it was for the same amount of money that my old loan left off on, and I was paying a higher percentage amount on the principal for the old loan, so I'm still having a hard time swallowing that one.

Whatever the reasons, when you consider that the refinance charges were significant, it seems amazing to me that I could add to my debt but still come away in better shape.

The real shocker is that the interest went up, from 4.75% to over 5%, so the next time your shoping for loans and the focus has an over emphasis on the interest rate, be sure to check the monthly payment amount and the number of payments. Those are the numbers that hit your pocketbook in the end.

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