Think you’re stuck with your high monthly mortgage payments? Think again. There are plenty of options for homeowners who want to refinance to lower their interest rate and monthly payments.
Just ask Kristine Tanzillo, 48, and her husband, Kevin, 62, who refinanced their home in November 2013.
Here's their story...
Their Home
The Tanzillos live in Myrtle Springs, Texas, on 14 acres. Myrtle Springs is an unincorporated area between Canton and Wills Point. One of the reasons the Tanzillos chose to live in Myrtle Springs is because they knew their dollar would stretch further in a more rural area, allowing them to have a larger home for less.
Tanzillo explains that the property consists of a main house, which is about 3,200 square feet and has three bedrooms, three full baths, a large open living area, and a mud room. There’s also an attached mother-in-law suite, consisting of approx. 1,000 square feet of space, which includes a living room, large kitchen, full bath, and large bedroom.
“My mother lives with us and this is her space,” Tanzillo explains.
The property also has an additional area used as the home office for the couple's small public relations agency, Dux Public Relations.
This was their ideal home, as it should be - since they designed and built the home themselves.
[Are you ready to get a mortgage? Click to compare interest rates from lenders now.]
Getting the Loan to Build their Home
When the Tanzillos started building their house in September 2007, they were approved for a piggyback loan, which was going to divide the mortgage into a 20-year note and a 10-year note.
Piggyback loans allow homeowners who put less than 20 percent down to avoid paying private mortgage insurance (PMI). With traditional mortgage loans, homeowners who can’t afford to pay 20 percent down need to acquire PMI, which helps protect the lender in case homeowners default on their loan. Piggyback loans are basically two loans put on the same property and closed simultaneously.
However, “by the time we converted to the final note in August 2008, the housing market was falling apart,” says Tanzillo. As a result, the bank didn’t want to assume the risk of a piggyback loan and changed the Tanzillos' loan terms to a 30-year note, making the final financing for $560,000 at a rate of 7.75 percent.
“The bank didn't give us an option,” Tanzillo says. “We were basically stuck with a 30-year note at a higher rate than we expected.”
Since the Tanzillos couldn’t go ahead with the piggyback loan, they had to pay PMI, which made their monthly payments $3,867.79.
Their Strategy for Paying Down their Mortgage
When November 2013 came around, the Tanzillos had already paid $150,000 in principal, bringing their loan balance to approximately $410,000. The Tanzillos explained that they were aggressive with their payment plan and made extra payments to their principle whenever possible.
To help expedite their payment plan even more, as well as score a lower interest rate, the Tanzillos decided to refinance their mortgage.
“We felt the market and our financial conditions had improved enough that we could refinance,” Tanzillo says. “We knew what lenders were requiring from borrowers and we exceeded all of the criteria.”
Plus, she adds that housing values in Texas were rising, so lenders were approving large loans again.
And Tanzillo was right. They qualified for a 10-year mortgage, but decided to refinance to a 20-year term at a 4 percent interest rate. That brought their new monthly payment to $2,526.94, a savings of $1,340.85 over the original monthly payments.
[Want to refinance and lower your interest rate? Click to compare rates from lenders now.]
How were the Tanzillos able to qualify for such a great interest rate?
“We were able to qualify for a lower rate because my husband and I both have high credit scores, have no debt except for the mortgage, and a solid payment history on our mortgage,” explains Tanzillo.
Plus, Tanzillo adds that they also refinanced through a credit union with a more favorable lending policy.
“The credit union didn't lump us into a credit ‘pool’,” she explains. “We were evaluated on our own merit.” Tanzillo says that besides looking at the traditional criteria such as tax returns, employment history and credit score, the credit union also evaluated their history with the current lender and how they built up equity in the house in such a short time.
“Given we are self-employed and were asking for a loan bordering a jumbo loan, there were many things that could have caused the credit union to say we were too high risk,” she explains.
However, after a face-to-face meeting with the VIP of Lending, the credit union “gave us so many options and ways to structure the loan, it was actually difficult to make a decision,” Tanzillo explains.
Overall, it was a combination of their strong financial situation, determination to pay off their mortgage, and finding the right lender that helped them score a low rate and dramatically reduce their monthly mortgage payments.
