At a crossroads… should I refinance?

This is my one-hundredth post! If you haven’t done so already please consider subscribing to my blog and checking me out on Twitter!

Someone in my family is in the process of buying a house and in conversation I was asked how I have my mortgage set up, you know… the rate, terms etc. It was suggested to me to go talk to my bank to refinance because I may be able to get 1. more money and 2. a better interest rate. Then today I had to make a call to my bank to ask about something and before the conversation ended I was asked whether my bank had done a mortgage review with me recently considering the rate of my mortgage and the possibility of a better rate. They hadn’t and I got curious… Should I refinance my mortgage?

Too many choices…

To date I’ve been insistent on sticking with my current mortgage but after really thinking about it I’ve made an appointment with the bank for Tuesday afternoon just to talk things over and possibly make some changes.

This is what I currently have; A 5 year fixed, 5.35% mortgage amortized over a bazillion year-ahem-25 years. My bi-weekly (accelerated) payment is $126.97. Yes, you read that right. $126.97, try to find an apartment on a lot with a garden for that rate. 😉

Unfortunately owning a property isn’t all roses and sunshine, houses need maintenance and stuff breaks.. just like my silly car that’s currently in the garage *sigh*. You’re probably wondering about point #1 (bold in the first paragraph. ) It’s generally STUPID to refinance and take out more money on your houses’ equity to pay other bills but hear me out…

You know that I’m doing my very best to pay my Student loan off, and it’s going quite well! Since I’ve begun paying it down in November I’ve paid HALF of it off and I’ll have the rest of the $16grand loan paid off by the end of this year. (Booyah!) The problem, like I stated earlier is that houses need maintenance.

Not long after I bought my house, knowing it was a huge project, a portion of the poured concrete foundation underneath the corner of the laundry room that’s attached to the house – crumbled and subsequently after ground heave in the winter – fell over. Yikes. I’ve been scared to tackle this project because it’s going to require permits, contractors and a chunk of cash that I don’t have yet. I also need to update my electric panel because I’m tired of having to buy new fuses and I need a new bathroom because the floor underneath the toilet has dry-rot. Lots of projects, lots of money that I don’t have.

This is all part of home ownership, especially fixer-upper-ownership and I’m cool with that but I wasn’t financially ready when I bought my house and I realize that now. Since there’s no sense in crying over the foolish things I have done I’m just doing my best to get out of the hole and become debt-free.

I have a few options with this whole mortgage debacle;

1 – I can refinance and ask to add the student debt to my mortgage, bringing the interest rate on both loans down by at least 1% and consolidating them into one mortgage. This will eliminate one mandatory monthly payment for me and will allow me to cashflow the foundation repair, the electric update and the bathroom THIS YEAR after which I can begin prepaying my mortgage again. The mortgage will be my ONLY debt.This option means I consolidate my debt at a better rate with similar terms without going deeper into debt.

2. I can refinance and ask for $5000-$7000 in cash so I can do the foundation repair, the electric update and the bathroom this year, leaving my student loan as is. I would get a better rate on my mortgage, my student loan would stay the same and I would essentially be borrowing an extra amount while continuing to have the monthly payments on both the mortgage and the student loan.

3. I can refinance just the mortgage, go for a shorter amortization period and a better interest rate, possibly increase my mortgage payment to something like $150-$160. I would cashflow the foundation/electric/bathroom repairs this year but not be able to make much progress on my student debt. I would save some interest.

4. Stick with the current situation; mortgage, aggressively paying down student loan and leave the repairs until next year.

My problem with the last option is that the repairs are beginning to scare me, rotting floors don’t go away, they get worse and it would be nice to have that porch properly rebuilt and sealed so I don’t have to worry about vermin crawling in through the broken foundation… (Bailey, the cat, doesn’t really hunt well)and getting rid of the draft in that area of the house would be fantastic.  My parents have also offered to help with the porch build, we can demolish everything ourselves (=free!) and my father is willing to help out with the build so I would not have to pay full price for a contractor. My original debt plan has never included these repairs because I had intended to wait but I’m starting to feel uncomfortable. My parents are experienced builders and they have assured me that this can be done, this year and that I should do it. My gut is telling me to listen to them. What do you think? Are there any options that I haven’t thought of? Even though my mortgage will be higher it would be really cool to just have one loan instead of two. I think that after the repairs are done that would also allow me to make progress faster…. I’d love to hear your thoughts.

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7 Comments

  1. Oh my goodness, where do you live?! I don’t even want to say how much we pay fortnightly for rent (though it’s obvious in my monthly roundups…). Even for a fixer upper, that’s insane.

    I know nothing about mortgages, but my first instinct is that #1 sounds like a dream option…although something about combining SL and mortgage also makes me feel uneasy.

    • East coast of canada, beautiful And cheap! :DI also feel a bit uneasy…. Factually though to me it seems that i would save money and have 1 loan instead if 2, plus a mortgage isnt a ‘bad’ debt…. I guess it just feels like im consoldating like creditcarddebt from buying shoes onto my mortgage or something…. That’s really dumb and obviously this situation is diferent but yeah…. Still uneasy about it! Ive written down these issues so i can discuss them with my bank tuesday

  2. from what I understand, a student loan can be deferred if you lose your job, etc.; whereas, same can’t be done with a consolidated loan.

  3. The only thing I have to say is that the repairs probably shouldn’t wait. If they aren’t fixed soon, it could cause further damage which equals more money.

    Option two sounds good for a quick fix on the repairs. Plus it doesn’t add much to your already low payment.

    Good luck with your decision, I hope you figure it out.

    • Thanks for your comment! Thats pretty much what my parents have said as well, in seriously considering options 1&2

  4. Just as clarification; the mortgage if refi’d will simply be a new mortgage for a higher amount than currently owed. What i reference as my student loan is a personal line of credit, a personal bank loan in essence. It is meant for education but can be used however i please, it is not deferable and interest is not taxdeductible.

  5. I think if I were you, I’d add the student loan onto the mortgage and change the terms to being a 15-year loan, and just pay anything else on top of it that you can. No matter what, you’d be completely debt free, including the house, in 15 years. And based on your progress, I could see that happening much sooner (maybe 8 years?). Debt free in 8 isn’t a bad place to be at all. I think you should then cash flow the repairs, but make it a priority. So for now I’d pay minimum on the new 15yr loan (house + student debt) and then put anything extra to fixing house. You need those repairs done to maintain your investment in your home. Then once the repair is done, start stacking extra money onto your loan and just keep crushing that sucker.

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