When we bought our house in 2013, we could only afford an adjustable mortgage. We were in not great shape financially, but thanks to our credit union and a decent credit score, we were able to buy the house.
Over the years that have passed, we’ve really gotten a lot of our finances in order and been able to save quite a bit of money while paying down a lot of debt.
Now the time has come for us to refinance the house to lock into a fixed rate before (I believe) rates go up again. We have two choices: A and B.
Refinance 148,000 (remaining balance on mortgage), 30 yrs @ 4.5% interest.
Refinance 170,000, 30 yrs @ 4.5% interest. Which would put us up into PMI territory.
The reason we might do choice B is that my wife’s father, in his infinite wisdom, got her a loan for college. But he doesn’t trust the government, so he got her a personal, unsecured loan for $38,000 at 8.5% interest. We’ve been paying on that damn thing for 15 years now, and it’s just now down to $19,000. If we went with choice B, we could pay that loan off and that amount would be at 4.5% interest instead of 8%. (the banker was “nice” enough to lower it to 8% a few years ago.)
If we go with choice A, we can have a lower mortgage amount AND get a home equity loan for about $10,000 at 3% interest. Throw in some money we have stashed away and finish paying that personal loan off. That will free up the $400 per month we’ve been sending to pay off her college loan that can now go to the home equity loan and some other debt.
I’m thinking choice A is the way to go. I’d rather have the lower mortgage debt and still pay off the personal loan than get a huge mortgage.
Is that the way to go? What do you think? Is this so obvious I’m making it harder than it needs to be?
P.S. When this is over, I can tell you about the $178,000 in student loans we owe.