Refinancing from a 15 to a 10, to a 30-year Mortgage

Why would you refinance a mortgage twice in just three years? My family went from a 15-year to a 10-year to a 30-year fixed mortgage in a short time. Here’s why we decided to refinance so many times. 

Starting with a 15-year Term

In July 2018, my family moved from New England to a little college town near Charlotte, North Carolina.

We decided to buy a two-story brick in a country club neighborhood because of the pool, tennis courts, and walking trails the area provided.

We'd bought our previous house in New Hampshire with a 15-year mortgage.

There were many reasons why:

• to pay down the equity in our home as quickly as we could
• to discipline ourselves to spend a more reasonable amount on housing
• to get ourselves to save money with a “forced” savings plan–that is, locking ourselves into a fixed expense mortgage while building equity

For us, a 15-year mortgage scored an interest rate of roughly half a percentage point less than a 30-year, or about 4%, when we took out the loan in 2012.

And almost half of our first few mortgage payments went toward paying down the principal, versus a measly one fourth of the payment for a 30-year mortgage.

While it was sometimes difficult devoting so much of our income to our mortgage, in the end, we paid down our mortgage by over $100,000, going from $274,500 to $160,900 in six years. 

When moving to North Carolina in 2018, a 15-year mortgage was a no-brainer for us, despite the increase in the price of our home.

One of our family’s dreams has always been to retire early, and in order to do that, we wanted to have our house paid off in order to enter retirement with lower monthly expenses.

So we purchased a home that would allow us to take out a 15-year mortgage on my husband’s salary (I didn’t have a job lined up when we moved).

Because we had built up so much equity with our New Hampshire home sale, we could put down a substantial down payment.

Even so, because we bought a more expensive house than we'd previously owned our new mortgage payment was $2400 per month, up from $1775 per month with our previous home.

It took a while to get used to the more than $600-higher payment each month, especially during the first year when I didn’t have a job, but we somehow adjusted our budget and made it work. 

Moving to a 10-Year Mortgage

Interest rates were dropping in early 2020 (cue ominous pandemic music). I'd gotten a full-time job as a teacher that year, so we had more income, and we thought it would be great if we could have our house paid off earlier than we even thought.

My husband researched and found a bank that would give us a 3% interest rate if we refinanced our loan.

We realized that with a lower interest rate, our monthly payment would only increase a few hundred dollars, and since we’d weathered an increase before when I wasn’t working, another increase shouldn’t be too difficult now that I had a full-time job.

Our new mortgage payment rose from $2400 to $2850, a $450 increase. While this increase initially seemed like no big deal, a worldwide pandemic and changed circumstances soon meant it would feel much more expensive than we anticipated. 

The Pandemic

We closed on our refinance in February 2020, so we made our first mortgage payment in April.

Yes, amid the lockdown, we increased our mortgage payment by almost $500 a month.

My husband and I were fortunate to have jobs that didn’t furlow us or otherwise force us to take unpaid leave, so our incomes stayed intact.

But then, after the difficulty of home-schooling two ADHD boys during the Spring of 2020, while I was also attempting to teach from home, I decided we needed to enroll the kids in a school that would be in-person during the following school year.

That meant spending more money on tuition.

I worked for a private school that planned to offer an in-person instruction model for the 2020-2021 school year, and we decided to enroll both boys.

My oldest son had become very depressed during the Spring of 2020, and my youngest son basically learned nothing. So we decided it was essential to make the change to a private school for them.

I'm a teacher in North Carolina, a state with one of the lowest teachers’ salaries in the US, so I make very little. When I enrolled both boys in private school, even with a 50% teachers’ “discount” on tuition, I still paid $18,000 after-tax dollars to send them to school.

Before the pandemic, I was maxing out my 403b each month and netting around $1,500 per month in take home pay.

After enrolling the boys in the private school and having tuition taken out of my paycheck, I was saving nothing in my 403b and taking home around $650 per paycheck.

Even though the 403b contributions and tuition payments were similar amounts, unlike with my retirement savings contributions I didn’t receive any tax benefits on the tuition payments, so I was paying a lot more in withholding taxes. 

That year was difficult financially.

We kept paying our 10-year mortgage and loved watching our principal balance shrink each month, from $295,000 to $293,000 to $291,000, but we were spending our savings and saving much less for retirement.

We knew we'd probably not keep the boys in private school forever, though, and we felt like we could weather the temporary financial storm since we’d planned well for financial emergencies during the previous decade. 

Enter the Job Loss

Sure enough, the following school year, I was offered a job at a local charter school with an excellent reputation, which meant that if I took the job, my kids could attend for free.

I jumped at the chance, and we registered the boys in the school.

While they weren’t thrilled to be changing schools again, the 3-D printers in the STEM building and the Robotics Team helped make the transition a little easier. 

Still, it was a challenging fall since three members of our family were transitioning to a new work/school environment.

Luckily, I was able to start contributing the maximum to my 403b again, and with no tuition payments, I had a lot more take-home pay than I did at my old school. This made our 10-year mortgage feel easier to pay once more.

Still, fate had different plans. 

Shortly after the school year started, my husband got some awful news. To condense a very long story, his new boss at the company he’d worked for over the past twelve years told him he would no longer have a job, effective December 31st (through no fault of his own).

He was crushed, to put it mildly, and we knew we had to prepare for a future where he had no income. Since he made over 80% of our income, this was a big deal.

Time to Rethink the Mortgage Again

I began thinking about the best way to keep us afloat financially during the months ahead and decided that one of the best ways to do that would be to refinance our mortgage–yes, again.

As much as we loved paying so much towards principal each month, we knew that if he didn’t get a new job quickly, our large mortgage payment would be difficult, if not impossible.

So, once again, just a year and six months after we’d refinanced into a 10-year mortgage, we looked for an online lender to help us refinance to a 30-year loan. 

We knew from our previous experience with refinancing that we wanted an online lender where we could upload documents easily.

One of the most challenging things about refinancing previously was that the bank we used, BNC National Bank, had a terrible online platform.

We had to scan and convert countless financial documents into PDF form and then upload them to the bank’s clunky platform. So, when my sister mentioned a refi service she'd found that was created to be easy to use, we investigated. 

The service was called Better, and it promised to be an all-online refinance service.

They offered an incredible 2.5% interest rate for their 30-year mortgage (with points), so we decided to do a cash out refinance and take out $20,000 in equity in the event we'd need that money to pay monthly expenses if my husband couldn’t find a job.

The service was very easy to use, and most of the documents we needed to complete were done online through a Docusign-type interface. The whole process of applying for the loan was seamless.

What wasn’t seamless was the day of our closing. Both my sister and I had the same experience: our closer didn’t show up on the day they were supposed to bring us our paperwork to sign!

In Better’s defense, they gave us a $500 credit toward closing since we had to reschedule our closing day, but I was shocked that such an essential part of the process went so badly. 

After we finally signed our refinance papers, we could breathe a sigh of relief. We took our $2850 mortgage down to $1600 per month, including property taxes and insurance, which our mortgage payment hadn’t included previously.

In other words, we didn’t escrow with our 10-year loan, and we did escrow with our 30-year loan. Not only was our monthly payment way cheaper, but we also had over $5000 less in separate out-of-pocket payments annually. 

We completed our refinance in October, banked the mortgage payment we didn’t have to make in November, and enjoyed paying our lower mortgage in December.

Since we were still earning the same income in December, I saved the difference in our mortgage payment and put it aside. 

A new job!

In March, three months after he lost his job, my husband found a new job, and between his end-of-the-year bonus, vacation pay, and the fact that we budget one month ahead, we didn’t need to tap into our savings at all.

As a result, we decided that instead of spending the difference in our mortgage, we would save the $1250 additional dollars (which we rounded up to $1500) and invest those in after-tax funds. That way, when it comes time to retire, we will hopefully have enough to pay off the house easily.

What we didn’t know was inflation was heating up. We started to see signs of inflation in December, and as 2022 continued, we realized that inflation would probably be a serious problem, at least for the next couple of years.

Luckily, we'd inadvertently created a hedge against inflation with our 30-year, 2.5% mortgage.

Our thoughts about paying off our mortgage early slowly changed, and now we’re considering keeping this mortgage for as long as possible.

Over the next 30 years, we'll be able to keep our mortgage payment fixed and continue to put (hopefully more and more) into our investment account each month.

Over time, our $1600 will be worth less and less, and we hope our investments will grow more and more so that our before- and after-tax retirement accounts can absorb the expense of a mortgage. 

• Should You Have Multiple Investment Accounts?

What’s the moral of our story?

You never know precisely what life will throw at you, so be flexible!

While we initially valued the security of a paid-off mortgage, we realized that as our circumstances changed, the security of a set lower mortgage payment felt like a better financial decision.

We don’t know what the future will bring, but we do know having cash on hand, and only mortgage debt has made life easier for our family. And we’ll continue working towards financial independence over the coming decade.

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