Mortgage Refinance

We are refinancing our home mortgage. Interest rates are still extremely low and our rate will only be dropping from 4.5% to 3.625%. Some might argue that this isn't enough of a reduction to warrant the time, effort, and cost of refinancing. I disagree.

We will likely pay for most of the fees associated with the closing out-of-pocket, rather than wrapping them into the loan and increasing the principal balance. Whether we add them or pay for them out-of-pocket, our monthly mortgage payment will decrease slightly either way ($12 including the fees, $23 if I pay for the fees).

The bigger savings is realized by reducing the length of the loan. Our current 30-year mortgage wouldn't be satisfied until December 2040. That's 21.5 years from now. By refinancing to a 20-year loan, we are shortening the loan by 17 months. This is a rather significant savings. Likely not a life-changing amount, but the savings would average just under $1,000 per year for the next 20 years.

Lastly, our current mortgage is with Wells Fargo. Last month, I moved an investment account I had with Well Fargo Advantage Funds to Vanguard. Now, refinancing our home with our local credit union ends our relationship with Wells Fargo Home Mortgage. Wells Fargo has repeatedly been in the news lately regarding its suspect business practices and it was reported they even preyed upon military personnel. That's a deal-breaker for me. Regardless the overall cost savings we will realize, moving our mortgage to our local credit union and away from Wells Fargo is incentive enough. The fact we will receive a financial benefit over the life of the loan makes it well worth the time, effort, and cost of refinancing.