Refinancing

We are currently in the process of refinancing our home that we bought in 2008.  At that time interest rates were at 6%.  Right now we are locked in on our refi at 3.75% on a 30 yr VA loan.  Not only is this going to save us money on the interest, we will also not have to pay PMI (mortgage insurance).  Between the lower interest and not paying PMI anymore it will save us roughly $400/month.  That is a huge raise for us and will help us pay off our other debt a lot quicker.  Currently we owe about 113k on our home, other debt totals around 11.5k (a camper loan and student loans). In order to get the VA loan, we are going to have to put down roughly 9k to pay down the mortgage and cover closing costs.

I just finished reading Dave Ramsey’s The Total Money Makeover.  The wife is about halfway through reading it.  While I like a lot of what Dave has to say in this book, I’m not a fan of everything.  Dave recommends that if you take out a home loan, do it with a 15 yr mortgage.  We are going with the 30. While a 15yr would be great, I would rather go with the 30 and just pay extra on it.  His thinking is that by going with the 30, people won’t have the discipline to pay extra and I can see his point.  I am pretty meticulous about paying my loans off early.  Kind of obsessed with it.  So I don’t think that a 15 yr loan is necessary, especially with the peace of mind I will have that if one of us were to lose our job, we could still afford our monthly house payment.  In the mean time, we will continue to pay extra on it like we have since the first payment.

My largest concern of Dave’s plan would be only having an emergency fund of $1,000 until all debt other than a home mortgage is paid off.  While that will pay down our debt very quickly, I wouldn’t have the peace of mind with that small of an EF.  What the wife and I are considering is taking the money we save on our refi, and putting that into our EF while we use the rest of our earnings to pay down our debt.  It will still pay down the debt quickly, and we will have a safety net incase an emergency decides to show its ugly face.  I am really excited to get the ball rolling on this debt snowball.  We just have to wait until the refi closes.

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