Meager Income

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I Refinanced My Mortgage Lowering My Monthly Expenses

Posted on | May 15, 2014 | No Comments

I’ve been wanting to refinance my mortgage for years now. My primary reason for doing so is that the monthly payment on the mortgage exceeds the income I’m receiving. So, in the event of a job loss, I would not be able to continue making payments on the property. If I were to get the costs and expenses closer to breaking even I would have more options.

I also wanted to lock in a long-term loan at a low rate. I am very jealous of those borrowers that were able to get loans at an APR of less than 4% especially if they were able to lock the rate in for 30 years. The Fed wants the inflation rate to be at 2%. But what if the inflation rate were to increase much higher, that would mean these borrowers would be making money on these loans, sort of.

I already missed out on the really cheap loans but I still wanted to refinance my mortgage. Currently, I owe more than the property is worth so a traditional refinance wasn’t going to work for me. I was given hope once the guidelines for the HARP program were expanded.

My current loan is at 5.5%. I was hoping to decrease the interest rate by at least a point. This would have been possible months ago but when I spoke to the lender they said that because the loan had PMI I would have been required to pay it on the new loan as well. After finally getting PMI removed, I contacted the lender again.

I was finally able to get the loan refinanced with an interest rate 4.5%. Unfortunately, it also means that I’ll be paying the loan back over a span of 30 years. When I was comparing the new loan to the old, I found the following interesting:

1 – The portion of my payment applied to principle was going to decrease by about $190.
2 – The portion of my payment applied to interest was going to decrease by about $110.
3 – Looking ahead there would be a point though in a few years where I would be paying more interest on the new loan vs keeping with the current schedule.

My new payment is now $920.56 which is almost the same as the rental income. I will probably be rounding the payment up to $1000 a month to reduce the interest I’ll end up paying over the life of the loan. It will be nice to have the lower payment if I need to cut back on costs in the future.


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