A Personal Look at Home Refinancing
A Personal Look at Home Refinancing
My husband Sean and I bought our first home with 100% financing. It was what the loan officer called an 80/20 loan since 80% of the loan was a first mortgage and 20% counted as a second mortgage. It was as if we were already borrowing against the equity in our home, even though we hadn't built any up yet. We just didn't have the money for a down payment.
In the next few years, we had to put a lot on our credit cards as we paid on our first and second mortgages. Our payment also included mortgage insurance that was required by the lender, because we'd borrowed 100% of our home's value.
The furniture in our bedroom and living room was a mixture of items out of my grandmother's attic, a few yard sale specials we'd picked up in college and even some from my old childhood bedroom. I mentioned to Sean that we really needed new furniture and he just pointed to the stack of bills on the kitchen table. I sighed, because I knew we couldn't really afford to put a whole new bedroom suite and new living room furniture on our credit cards. For the next several months, we just made do with what we had.
When spring came around, we found out that our old outdoor air conditioning unit needed to be replaced, and we knew it just made sense to pull out the electric furnace at the same time and replace both with a new, modern heat pump. In the long run, the increased efficiency would save us a lot of money month to month, but the up-front cost of buying a heat pump and having it installed stretched our finances even more. I saw my dreams about new furniture getting further and further away.
It didn't help my mood at all when a big truck from one of the furniture stores pulled in next door and I saw our neighbors unloading beautiful new furniture into their house. I walked over to take an envious look at their new items. Cindy came over to greet me, and I could see how excited she was.
"We did the best thing last week," she said. "We refinanced our home and got cash out to get new furniture. It's wonderful. I didn't think we'd made enough payments yet to refinance, but the way the home values in this neighborhood are rising, it turned out we had a lot more options than we thought. "
I congratulated her on the new furniture, but I was already thinking about what she'd said. Could refinancing be a good option for us?
Sean and I went back to our loan officer the next week and told her about what our neighbors had done. She looked up a few comparable sales in our neighborhood and said refinancing might be a great idea for us.
Boy, was she ever right! Just as we had gotten rid of an inefficient outdoor air conditioner and indoor electric furnace, our new mortgage took our old first and second loans and refinanced them into a single loan. What's more, the total amount we were now financing was less than 80% of our home's new value, meaning we no longer needed the mortgage insurance. All in all, we would be saving $450 a month! We wouldn't need to get cash out of our home to start aggressively paying off our credit cards, and we could also make payments on the new furniture we wanted.
Two weeks later, it was our driveway that the furniture store truck was pulling into. Cindy came over to take a look and I thanked her for the advice about refinancing. That's when she told me she was glad she and her husband hadn't used all the cash they'd gotten out of their home on the new furniture. She said it looked like their old indoor furnace was on its last legs and they needed to replace it before fall. I told her they should think about replacing both the furnace and the outdoor air conditioner with a heat pump. It felt good to be able to offer Cindy advice for a change.