Success Story: Danny and Tracy Kofke
While most homeowners refinance to lower their monthly mortgage payments, Danny and Tracy Kofke wanted to pay off their Hoschton, Ga., home more quickly.
That means laying out a little extra cash each month, even with record low interest rates.
The Kofkes bought their 1,900-square-foot, three-bedroom, two-bath home in 2006 for $144,900 with a 30-year, fixed-rate mortgage at 6.5%.
In 2008, they refinanced into a 20-year fixed-rate loan at 5.5%, which increased their payments by about $80 a month.
In 2009, they refinanced again, this time to a 15-year fixed-rate loan at 4.5%, which added another $10 to their payments.
But they'll save more than $60,000 in interest costs over the life of the loan. (See how much you could save with our 15 vs. 30 year mortgage calculator.)
"That, to me, is worth an extra $90 a month," Danny says.
The Kofke family didn't have to cut its spending last year to make up for the $80 difference between their 30- and 20-year loans. Danny had gotten a small raise, which took care of the extra amount each month.
"We kind of live as bare bones as possible right now, so it wasn't that noticeable," he adds.
If necessary, they would've likely looked to cut $20 a week out of their grocery bill, or dipped into their emergency fund, which has reached nearly two years worth of expenses.
"Both of our cars are paid for, but I kind of look at it like if something happened and one of the cars went, we wanted to have that freedom for her to be able to stay at home," Danny explains. "Something like that would be a thing that would force her to go back to work if we didn't have that cushion."
Much of the emergency fund, as well as their large down payment, came from the sale of their first home, a smaller two-bedroom, two-bathroom home in Florida. "We sold in Florida when times were good," he notes.
The Kofkes' goal has always been for Danny, 33, to continue teaching and for Tracy, 36, to be a stay-at-home mom, which she is now doing with their two young daughters.
Eight years ago, when they first married, both were working, times were good, and they lived like there was a recession.
"We almost tried to live off of one salary and pay off the debt we had with the other and just sock as much away as possible," Danny adds.
Although Danny doesn't anticipate the additional $10 a month they'll pay with their new mortgage to be an issue, he's planned for it anyway.
Their mortgage officer estimates that the family will not have a payment on their new mortgage for two months, so Danny estimates he and Tracy will be able to add the amount of the two skipped payments -- about $1,400 when taxes and insurance and included -- to their emergency fund.
"Well take out $10 each month to offset the increase in our payment," he notes. "We'll be able to do this for over 11 years."
Danny recommends the following tips for those looking to take advantage of low interest rates and refinance:
- Punch the numbers into an online mortgage calculator and see what option works best for you. "For someone like myself, I definitely think it helped -- to see the numbers in front of you so you can make an educated response to see if it's something that would be worth your while."
- Think long term. But to have a long-term goal, you need to have short-term goals that will get you there. For the Kofkes, the additional amount per month is worth to have their home paid for in 15 years.
- If you can't lock into a 15-year loan, make additional payments toward the principal when youre able. "If you have a little leftover, go ahead and add it to that principal on your mortgage and pay it off quicker."
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