I Made This Mistake When Refinancing My Mortgage – And Have Regretted It Ever Since

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As long as I’m honest, I should probably tell you that I made more than one mistake when refinancing a mortgage. And like many mistakes in my life, I could have avoided them if I had waited a little longer to see how life unfolded.

jumped the gun

When we first bought a house in Michigan, my husband was new to the auto industry and, frankly, we had no idea how long we would be in the house. We took out a balloon mortgage, which was much more common before the housing market crash in 2008 (for good reason). Although we qualified for a mortgagewe were attracted by the low interest rate associated with a balloon mortgage.

How it works

A homeowner makes a monthly payment for a number of years, usually between five and seven years. At the end of this period, the entire mortgage balance is due. Let’s say someone borrows $200,000 for five years. Rather than amortizing the mortgage over five years (which would result in a higher monthly payment), the lender amortizes the loan over 30 years.

The owner has a low monthly payment, but has paid little for the principal after five years. Once the balloon matures, that person must either take out a new mortgage to pay off the existing mortgage or find enough money to cover the entire balance.

A balloon mortgage could be a viable option for someone who doesn’t expect to be in a home for more than five to seven years. Anyone else needs a solid plan in place.

interest or no interest

At the time, many lenders offered “interest only” balloon mortgage. Anyone who took out such a mortgage paid nothing for the principal and accumulated no equity in their home. We didn’t want to do that.

The average mortgage rate on a traditional loan the year we bought this house was just under 8%. We were offered a 6% rate and thought we got a good deal. The balloon wasn’t due for another five years, but once it became clear we were staying put, I started monitoring mortgage rates.

Two years after we moved in, the average mortgage rate was over 9%. I can’t say I panicked, but I became worried. A decade earlier, we had seen the average rate hit 18%, and the more I thought about it, the more convinced I became that we were heading in that direction again.

A rash decision

One day I picked up the phone, called a lender, and started the process of refinancing the house. And because I was so caught up in “should I or shouldn’t I”, I broke the cardinal rule of borrowing by not shopping for the best refinance lender.

To this day, I cannot tell you how much we paid for this loan because at that time my decision was emotionally driven and I did not pay attention to detail. All I knew was that I wanted to get out of this balloon mortgage, and I wanted to lock in an interest rate before it skyrocketed.

A few years later, when we actually had to refinance the balloon mortgage, rates had dropped quite dramatically. If I hadn’t made such a rash decision, we could have saved some money.

A new day, a new mistake

At the start of 2021, we had been living in our current home for a few years and wanted to take advantage of the low rates introduced by the pandemic. I really love this house and convinced myself that I wanted to live here until I was too old to walk up and down the stairs. It was in this fog of wishful thinking that we went through the refinancing process.

Given how many times we’ve moved for my husband’s career, I should have paused to ask myself how long I could reasonably expect to stay in the house. Shortly after the refinance, my husband decided to take a job in another state, and it occurred to me that I would never have paid to refinance the house if I had realized that we didn’t. We weren’t going to stay here long enough to justify the cost. We still owe $3,000 more on the mortgage than before the refinance, and while that doesn’t seem like a lot, it irritates me every time I think about it. That’s $3,000 less for invest in the future.

I realize that being smart with money would be a lot easier if we had a crystal ball telling us what’s just around the corner. Instead, all we can do is weigh our options to make the best decision possible at the moment.

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