The Missus and I bought a condo in 2009. After putting 20% down, we secured a $300,000 30-year fixed rate mortgage at a pretty good interest rate. Our monthly payments were significantly higher than those for the smaller, cheaper place we’d moved from. But they were manageable and within our budget (even if, knowing what I know now, we’d have tried to get a lower-priced place). We later refinanced a few times to secure even lower interest rates. Happy days.
That’s interest(ing)
But then I discovered FIRE and learned how renting is often the better play monetarily over buying a place. My distaste for paying interest on anything — including “good debt,” like a mortgage — was enhanced, too.
During a conversation with a dear friend, I mentioned that I thought that once we moved from the place we were in we’d likely rent and never own again. He was skeptical of the finances and other potential benefits of renting over buying. But he totally understood the motivation of paying less in interest. And so he mentioned that he’d refinanced his 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage, both to pay off his place sooner and to avoid paying a lot of interest. I stopped in my tracks. That made so, so much sense. Especially if the monthly payments didn’t increase to an unmanageable amount.
Since we’d last refinanced, mortgage interest rates had dropped even further. So I ran the numbers. If we refinanced to a 15-year fixed-rate mortgage, our monthly payments would increase, but only by about a wholly manageable 10% as I recall. Were we to see the loan through to its ultimate repayment, we’d save tens of thousands of dollars in interest. Realizing what an idiot I am I’d been (I have this realization many times each day, but this time was a little different), we pulled the trigger. Tho we moved well before the new loan was paid off, we realized a decent savings.
Hey, wait a minute . . .
Full disclaimer: You may have surmised that the sum in the blog post title is the amount of money we saved from switching from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage. Actually, the sum is based off of the same original loan amount for each loan period, and payments made over the full length of the 15-year loan. In reality, by the time we switched to a 15-year fixed-rate mortgage, our principal was down quite a bit from the original amount. And, as mentioned, we moved before the new loan term was up. So our total potential and actual savings was less than $110,000. Just thought I’d clarify that.
Math can be hard. But hopefully you have more than zero command of numbers.
