Refinancing the Current Home

When we bought our current home, we financed it with a fixed rate, interest only loan. The advantage to this loan? It has a buy down feature. It means that anytime during the first 10 years, (when you only have to pay interest) if you pay down principal, the monthly payment also goes down. Since we hadn't sold the prior home yet, this was a great feature, since it would allow us to lower our monthly payment once we sold the prior home and would be able to pay down some principal. All this sounded great, but the problem was of course, we never did sell the prior home. So, in the two years we've owned the home, we haven't paid down much principal, and since there's little likelihood we'll sell the other home in the near future, this particular loan isn't doing us any favors, especially with a fixed rate of 6.5%.

I actually thought for a long time this particular rate of 6.5% fixed was really good, since our loan is technically a "jumbo" loan, even though we're in that gray area of being above $417k but below the new government definition of "jumbo". I held this belief because every time I checked with our credit union, I found out that a refi of our current loan would get me a 30 year fixed rate that was about 2 percentage points above a conforming loan, right around 6.75% which wouldn't have been beneficial to refinance.

I ended up talking to a mortgage broker recently since we had started a new home search and found out that the reason the interest rate from the credit union was so high for our loan, was because credit unions have to adhere to the old definition of "jumbo" while, FHA backed loans do not have this same requirement. So, with a real bank refinance, our loan would be considered conforming. With this news, we started the process of refinancing our home this week at an expected rate of 5.5% 30 year fixed, no cost loan. We could have gotten a lower interest rate with either a 0 point or 1 point loan, but I didn't want to put any money into this refinance given the uncertain future we have with this current home.

The lesson learned here, is that you definitely need to shop around for a loan. You might get a better deal than you expect.