I Just Extended My Mortgage by 24 Years, Even Though It Seemed Like a Bad Idea at First

published Nov 17, 2020
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House exterior. View of landscape on front yard
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Few things were more thrilling than refinancing from a 30-year to a 15-year mortgage back in 2011. “Becoming mortgage debt-free by 41-years-old? Yes, please,” I thought as I eagerly signed the closing paperwork. While I don’t regret my choice, this year’s rock-bottom interest rates and economic uncertainty led to an unexpected change.

The problem with my 15-year mortgage

Before refinancing, I had one long-term financial goal in mind—owning my home outright and paying less interest on the mortgage. But as the property value climbed and the loan balance went down, I realized that I craved more flexibility. By refinancing to a 15-year mortgage, I locked myself into a higher monthly payment, leaving less money for my other goals. 

Why I refinanced back to a 30-year mortgage

With only six years left on my 15-year mortgage, some folks questioned my choice to backtrack with a 30-year loan. There’s a big reason why I did it, though: more cash for future opportunities.

After nine years of paying my 15-year mortgage and a spike in my city’s home values, I was sitting on nearly $300,000 in home equity. With no plans to sell the home, I changed my mind about paying off the mortgage sooner. As interest rates hit record lows, my first instinct was to refinance back to a 30-year loan and tap some of my home equity.

But first, I asked myself an important question: Should I continue to pay off a 3.25 percent interest rate mortgage sooner when I could invest the extra money elsewhere? While all investments have some level of risk, I realized I might earn a higher return someplace else, like the stock market, more education, business opportunities, or even another property. 

The move also offered a sense of financial security, particularly during the pandemic. By adding to my cash, reducing my monthly payments, and lowering my interest rate, I felt more prepared for any income dips.

How I picked the right cash-out refinance

After comparing interest rates online, I used the data to shop around. With a few referrals from friends and colleagues, I emailed some lenders to compare quotes. A local bank offered the most competitive rate and lowest closing costs for a cash-out refinance.

The bank offered a 30-year cash-out refinance at a fixed rate of 2.49 percent and closing costs of only $2,744.53. The new monthly payment would be $432 less, which would allow me to break-even on my closing costs in fewer than seven months—score! As a freelancer, I had to submit extra paperwork for the underwriting, but otherwise, the refinance process was smooth. 

The risks of a cash-out mortgage refinance 

Before applying for a cash-out mortgage refinance, I considered how it might impact my finances.   

The biggest risk of a cash-out mortgage refinance is taking on more debt. By increasing my mortgage, there is a possibility I won’t be able to pay it back, and the bank could foreclose on my home. But this may be less likely with a more affordable monthly payment. Another downside is it may be more challenging to qualify for other loans outside of my mortgage. Lenders will compare my debt to my income to determine if I can afford another loan. 

While it has only been one month since I closed on the refinance, I am still thrilled with the decision. Time will tell if the investments pay off but I am already relieved by the lower monthly mortgage payments.