This past payment has marked a momentous occasion, if you happen to like multiples of 10, which I do. We’ve officially paid off over $100,000 on our home. Based on some calculations, we’re 5 years ahead of schedule for paying off our home!
As some background for you, we bought our home in DC for about $400,000 back in 2004. We had a combination of a 5/1 interest-only loan (80%) and 15 year balloon (20%), which meant a lower payment, but 100% financing and a big risk to the bank and us if either of us lost our job. We also had over $115,000 in debt outside of the home back then too.
As of today, we’ve paid off all our debt (the last one being my student loan in Nov 2009), have a good 5 figures in cash savings, 6 figures in retirement (but nowhere near what we’ll really need), and our 2nd mortgage paid off and a small chunk of our primary mortgage paid down. Overall, we’re closing in fast on a half-million dollar net worth, counting home equity (but that’s always a hedgy calculation). Life has been good for us financially.
But it’s decision time. We thought this house would be good for 5 years; basically a starter home. We’ve been in it for over 7. We’ve gotten to be good friends with our neighbors, we like the local area and are learning to love it more. But we have to ask…
– Should we stay or
– Should we go?
(yes, that was from a song)
There’s a lot that we have to consider and I won’t list everything here, but lets consider the financials:
– We might break even on the sale of the house, minus realtor fees
– We need to consider WHY we would move (bigger, newer, smaller, etc. house…new jobs…change of life?).
– Should we refinance? Should we go short-term (another variable mortgage like a 5/5) or longer-term (15, 20 or 30 years)?
That last question has a lot of impact because it implies how long we stay here, when can I close some credit cards (cause it’ll hit our credit scores) and, maybe if the wife lets me and I can find the right one, when I can replace my truck (another hit on credit scores and our piggy bank).
Ok, so let’s assume we stay. We have to decide on:
- Stay with our current mortgage: We have a variable rate (5/1), interest-only mortgage (for only 3 more years) that has saved us tons of money since the rate went to variable in 2009 (it’s under 3% right now). BUT, the 6-month LIBOR rate, which is our prime rate, has been going up recently. It went from .40 to .80, but now it’s at .70, so I don’t know what to think. We have a couple more months until the next reset though…
- Another variable rate mortgage: We’ve been lucky with our current mortgage, but Pentagon Federal Credit Union is advertising a 5/5 loan (not interest-only) in the low 3% range AND they pay your closing costs. That’s the biggest reason I’m looking at that loan option. You can spend thousands in closing costs, not counting the escrow that you get back.
- 30 year mortgage:Ok, here’s where we decide on staying in our home for a while. If we’re paying closing costs and committing to a higher mortgage payment, then we need to stick around for a few years for that payback period on the costs.
- 15 year mortgage: Same as the 30-year (gotta stay in the house, etc.), but with a lower rate and higher payment (because it’s shorter-term).
Ok, so what do we do? I know you all can’t help with our decision of whether to stay in the home or not, but what have your experiences been on refinancing, including something like the PenFed 5/5 loan with no closing costs? Keep in mind we have A-rating credit scores (I’ve checked).