Rate And Term Refinance

We love our home, but we sure do hate our home loan. Yin/yang. Give/take.

Why do we hate our loan? Because we got locked into a high interest rate that’s causing us to pay about $200 extra every month, and who likes to shell out extra benjamins just to pay interest on a loan? Nobody, that’s who. Which is why we’re looking into a “rate and term refinance,” which is basically a home loan that we refinance in order to secure a better rate, or better terms. A better rate means a lower rate, and better terms can mean a number of things, depending on what kind of loan we’ve got. For example, if we somehow ended up with an option ARM that we just really don’t like, we can try and refinance to a more traditional type of loan.

Let’s say we’re six years into a 30-year mortgage with a 5.17% interest rate. We’ve grown a lot as a person over the last six years, and this includes improving our credit score and earning a couple raises at work. Those changes, combined with lower interest rates in general, mean that we could now refinance our home loan at the quite attractive interest rate of 4.05%. Refinancing might also start the 30-year clock over, which means we’ll be making mortgage payments for an extra six years, but we’ll be paying a lot less every month, and significantly less in total.