If we had not refinanced last year, I am afraid we would have missed our mortgage payments for the past several months. I can easily gauge how easy or difficult it is for us to make our mortgage payment each month based on whether I can pay extra. Before we refinanced to 2.75 percent, our mortgage payment was more than $1,200 a month. We didn’t have the money in our budget to afford that high of a payment, but we could afford our $900 payment as long as I didn’t pay any additional toward the principal. According to a recent article by Credit.com, a larger number of mortgage were one month to two months past due in the fourth quarter of 2013 compared to the prior year. We were hesitant to refinance our home at first because we figured interest rates might keep going down. I can understand why more people are missing mortgage payments.
Rising prices of homes
According to data by Experian-Oliver Wyman Market Intelligence Reports, the number of outstanding mortgages went down from 2011 to 2012, but then went back up again in 2013. It makes sense that fewer people would be on time with their mortgage payments as the price of homes increases. My family wouldn’t be able to afford a new home comparable to the one we already own. Refinancing took the financial stress off of us at the tail end of the Great Recession. We had paid down our mortgage to the point where we only had to about $100,000 left to finance.
Juggling the cost of health care
I am paying significantly more for health care insurance this year compared to last year. When we first refinanced, I continued to pay $1,200 toward our mortgage even though I only owed $900. Now, the $300 “extra” goes toward the higher health insurance premiums that I’m obligated to pay due to changes in our society. I also had an unexpected health care bill that I wanted to pay off, which forced me to put my mortgage payoff plan on hold.
Refinancing for the payment
Some people refinance so they pay less in interest over the course of their mortgage. For people who care more about interest, it makes sense to have a shorter mortgage term such as 10 or 15 years. We chose a 15-year mortgage to save money on interest. We happened to get lucky by having a smaller mortgage payment as well. If we found ourselves in a financial bind, we’d consider refinancing at a higher interest rate in order to lower our mortgage payment from $900 to $500 or $600 a month. I don’t know any rentals in my area that are less than $800 a month.
Ultimately, it pays off to stay in one home and refinance as needed. Refinancing does cost a lot of money in closing costs, appraisal fees and title search fees. However, I rather have a mortgage I can afford than miss payments and go into foreclosure. I’m stunned by how many homeowners in my community are in pre-foreclosure. Refinancing may have sabotaged my financial goal to pay off my home super early, but it allowed me to at least stay in my home as our expenses increased.
More from this contributor:
Should I Become a Serial Refinancer?
How I Tricked my Family into Saving
Becoming a Roth Millionaire