In 2011, Mr. PoniesandFIRE and I bought a house while newly engaged, in every wrong way possible. It was a foreclosure that needed some major work. We barely put down a down payment and what we did put down was mostly from a 401k loan that we took out. We rolled closing costs into our mortgage and actually mortgaged more than the purchase price.
We took out a 30 year mortgage with a 4.75% interest rate. We dropped probably another $8k the first few months living there, when we found we had burst pipes from them being improperly winterized and that we needed a pellet stove to heat the place, plus a variety of other expenses to make the home livable (read, NOT nice).
It was probably two months later that I found myself in front of a computer googling “how to get out of debt,” and came across Dave Ramsey. That was our real entry in personal finance and we then cash flowed a wedding, paid off credit cards, student loans, the 401k loan, vehicles and more. We had PoniesandFIREjr. We figured out daycare costs. We eventually got to the point where we were able to pay extra on our mortgage.
Things were cruising along financially, but it felt like some funds were slipping through our fingers. We weren’t as tight on our budget as we had originally been and while cash flowing some expenses, it felt like weren’t making any progress on our house.
Mr. PoniesandFIRE suggested a refinance, but I was against it as, on paper, we should be able to make big progress on the mortgage and pay it off soon, so why go through the hassle of a refi? I dug my heels in a bit on this, but when I realized we could reduce our interest rate and that there would be very minimal closing costs, I was swayed.
In October 2017, we refinanced from our 30 year 4.75% to a 10 year at 3.25% with our local credit union. At that point into our 30 year mortgage, a regular payment was only reducing our principal by around $370 a month. Our first payment on the 10 year reduced our principal by $1,000!
If we don’t pay ANY extra between now and the loan’s maturity, just by making this refinance, we will save ourselves over $50,000 in interest!
I know there is strife over paying off mortgages early in the FIRE versus Dave Ramsey worlds, but for us, we still plan to shoot for being mortgage free as soon as possible. Once our mortgage is gone, I could get rid of my side hustle with zero negative financial effects to our lifestyle and make huge improvements in our quality of life.
For us, the 10 year was such an improvement in our interest rate, as well as being the kick in the pants we needed to stay on budget. Rather than our extra payments dwindling like last year, they are built in now, but it’s not so tight that a bad month financially would be hard to make the payment. Even if we go through with selling next year and downsizing, the progress we will have made in the 18 months on the 10 year will be hugely helpful!
If you haven’t considered it before, I definitely suggest checking out a 10 or 15 year mortgage refinance and don’t forget to check your local credit union! Our credit union could beat every other bank we tried by at least ½ a percent!