Janet is a single mom. She holds a good job and can afford to make her payments, which is a relief, considering the demands of being the sole breadwinner in addition to being a single parent. She’s got her wits about her and is her children’s hero. She’s sacrificing so they can go to college someday. Every penny counts in her household to this end.
Janet just refinanced her mortgage, after being contacted by a mortgage lender referred to her by a friend. The $2,500 payment on her mortgage was reduced and the interest rate was better, so she felt great about making the decision. Unbeknownst to her, the com- missioned salesperson on the other end of the line stuck her with an additional percentage point in fees along the way. It was easy for him to do, since Janet innocently took the payment/rate bait—hook, line, and sinker.
With ten years left until her firstborn goes away to college, another $2,500 contribution to the college fund would have been substantial. But instead, it’s locked up in her mortgage as a silent thief, racking up interest until the last payment she’ll make on her mortgage—more than $12,000 when it’s all said and done.
Janet’s out $2,500. Wait just a minute—make that $14,500!
Does it make sense to pay for the additional percentage point from savings and not roll it into the mortgage? If you plan to stay in your house long term and it takes 5 years to recover the additional cost, at least you will start saving money after 5 years, which can add up to a couple of thousand saving for the life of the loan.
Hi there – take a look at the refinance decision engine on the website. It’s free to be a member….you can model your exact scenario and see what transpires. It makes sense to pay down faster, but the real issue here is how much benefit you will garner on the refinance. There are additional variables at work.