Saturday, February 9, 2008

Could We Be Debt Free in 3 Months?

With mortgage interest rates going down, we have been considering refinancing. We currently owe $240,000 on our house. We are 5 years into a 20 year mortgage with an interest rate of 5.25%.

We are thinking about refinancing to a 15 year mortgage. Currently we could get a rate of 4.99%. This would not extend the term of our mortgage and would save us money every month.

What I hadn't thought about until last night is this - I think we need to "pay off" our HELOQ before we can refinance. Since we don't have $27,000 (amount of the HELOQ) sitting around, we would need to include this amount in our refinance. So instead of refinancing for $240,000, we would need to refinance for $267,000.

I ran the numbers and it seems that we would still save a significant amount of money each month:

"If you refinance your current 5.25% mortgage and your current 8.25% mortgage into a single 4.99% mortgage, your monthly payment will decrease by $279.97 and you will save $51,688.20 in interest charges over the life of the mortgage."

(Am I figuring this right?)

And I can't help but get excited about the fact that this would have us completing Baby Step 2 in the next 3 months! I know that this isn't really paying off the HELOQ, but just rolling that debt into our mortgage and extending the payments over 15 years. But it seems like this option will save us a good amount of money. And I would be soooooo happy to move on to the next step of saving our Fully Funded Emergency Fund. And then on to saving for college (which I have been worrying about since DD1 will start in just 7 years and nothing saved yet!).

Any comments on why this approach may or may not be good would be much appreciated!

(Somehow it seems too good to be true - and that makes me suspicious!)