Refinance During Debt Snowball

**trailblazer** · 05-13-2008, 12:00 PM

I have a bad mortgage loan at the moment, a whopping 7.4%. I want to refinance, and the 15 year options looks enticing at 5.5%! Problem is that my monthly payments will go up. I could afford to meet this increase, but I am doing the debt snowball now, and I am afraid that the extra payments will slow my progress.

The 15 year and 30 (5.85%) year refinance options also have hefty refinancing charges (around $3500). My other option is to lock in at 6.3% for $200. This would actually reduce my monthly payments.

Also, the 15 year monthly payment will be greater then a 1/2 of my take home pay. What would Dave say?

Advice would be great! Thanks.

**itlw8** · 05-14-2008, 08:59 AM

a payment of 1/2 your take home puts your home at risk if you lose your job or get sick. I would probbably take the 200 refinance and continue debt snowball and then sock it onto the mortage.... I would also continue paying the payment I was now even though the new one is lower... everything you sock onto the mortage in the first 10 years makes a HUGE savings

**mombottoo** · 05-15-2008, 10:31 PM

Originally Posted by itlw8

a payment of 1/2 your take home puts your home at risk if you lose your job or get sick. I would probbably take the 200 refinance and continue debt snowball and then sock it onto the mortage.... I would also continue paying the payment I was now even though the new one is lower... everything you sock onto the mortage in the first 10 years makes a HUGE savings

I agree! 1/2 of your take home is just way too much to tie up in a house payment.

**RachelV** · 05-16-2008, 12:47 AM

Do not get the loan which takes 1/2 your monthly pay!

I wouldn't pay $3500 to get a new loan either. That could 'really' pay down your debt!

The 6.3% for $200 is not far from the 7.4% you're paying now. How much does it reduce your payment?

Since interest you pay is deductible on your taxes, honestly I would keep what you have, pay down your debt, and look again when your debt is more comfortable to you, or the new loan reduces your rate and payment substantially.

If you pay your debt off before you refinance, then you 'could' do a 15 year loan even if it increases your payment a bit AND because your debt is paid off you can more afford it. Besides, 7.4 is not a bad loan really.

I used to be an escrow office, and if I recall, the 'rule' was not to refi until there was a 2 point difference in rates.