Refinancing and Thoughts on Credit Score

It’s been over a year since my last refinance. A refinance that I found to be quite epic, as I was able to get the private mortgage insurance off (~$300/month), go from a thirty year to a fifteen year, and basically keep the same payment. I’ve now passed my last actuarial exam, life is settling down, and my credit “worthiness” boost from starting a new traditional job has kicked in, at least I think.

Time to go shopping for mortgage rates.

My first call revealed I had two outstanding collections from medical bills four years ago. What a buzz kill. It’s not a great feeling, because it feels like I’ve spent so much time disputing them already, and I have resubmitted disputes. Experian had closed those accounts and I thought Transunion and Equifax had done the same but I guess not; I should receive answers from the disputes within 45 days. Long story short the loan officer said if I got those taken care of I could potentially get it down to about 2.125% but currently he thought I’d get probably 2.5%. While I definitely want to resolve those credit report issues, as I think we will be buying something or wanting to refinance soon and want the most favorable rates, let’s crunch some numbers and see what the differences over the next year would look like.

I am currently at 3.125% on a 15 year mortgage, with about 240k left over ~14 years. Let’s analyze some scenarios and think about some goals. My life is a bit influx at the moment so I will be focusing on a one year time horizon (outside chance I move and just decide to sell soon), but per usual looking to increase my net worth. Here’s a summary table but I’ll also have the individual amortization tables below (let me know if you’d like the workbooks with the calculations).

Current

You’ll notice the interest portion is going down over time as the principal getting paid off is going up.

Realistic Outcome

Notice here, over the year, one is paying about $850 less in cash and paying an extra $615 off the principal. It’s a double whammy working in your favor to increase your net worth, more cash on hand and more debt getting paid off. I put before tax consideration because the interest is somewhat deductible (I’m no accountant, so don’t want to talk specifics). I believe the change to net worth would be slightly less than what I have listed.

Crazy Good Outcome

You can see here with a 2.125% rate the picture gets even better. Now the question becomes what are they charging in fees to refinance? As the time horizon increases the impacts to my net worth are definitely realized but over a one year timeframe in my head I’m comparing what my net worth is going to go up over this one year vs what it costs to refinance. For example if they’re going to charge me $1,500 to refinance I’d have to get a pretty good rate, better than my “realistic” scenario of 2.5%, as:

my change in net worth = $1,467 < $1,500 = cost to refinance

First thing is first though, I must resolve these negative factors that are bleeding into two of my three credit scores, Transunion and Equifax.

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