When we moved in, the backyard was nothing but weeds.  My husband planted the grass from seed, and has tended to it ever since (no chemicals – everything in our yard is organic).  With the lawn in the foreground of the picture, it looks much bigger than it is.  In reality, we have a relatively small patch of grass and the majority of the yard is devoted to the orchard, berry patch, and veggie beds.  But when I tried to get closer to the garden with the camera, I couldn’t fit the whole thing in the picture.

There are people who are perfectly content with their 9 – 5 jobs and find great fulfillment in them.  If that’s you – keep on doing what you’re doing!  But for people who long for more independence and flexibility, and would like to start working for themselves but don’t know where to begin, today Tammy released a new e-book called Smalltopia: A Practical Guide to Working for Yourself.  I just finished reading the book, and it’s an excellent resource for anyone trying to launch their own little business.  It includes lots of practical tips, ideas, and resources, along with personal stories and advice from numerous successful small business owners (I’m a big fan of real life stories, so I really appreciated that part of the book).  One of the overwhelmingly consistent ideas from just about all of them was that reducing your expenses is one of the keys to success.  Of course that really resonates with me, and it makes perfect sense:  if you set our to start your own little business and your lifestyle eats up $5000/month, your business is going to have to be pretty darn successful right out of the gate.  But if you only need to earn $1500/month to cover your expenses, you’re giving yourself a much greater chance of success, and reducing the chances that you’ll end up working 80 hours a week to make ends meet.

I’m a big fan of small business and self employment.  My husband and I started our little insurance agency in 2003, and it has supported us ever since.  We have used technology to our advantage, slowly making our business entirely an on-line entity by about 2007.  We do not ever have to leave the house for work anymore, and that means that we can work from anywhere we choose.  We would not have been able to pursue our dream of growing our own food if we had been tied to our former location by our jobs.  The fact that we can work from anywhere meant that we were able to find a home that met our needs without worrying about where that home was located.

Of course, not everyone is interested in growing their own food.  Some people have a dream of traveling the world, or volunteering full time, or starting a family, or living on a boat.  Your dream doesn’t have to be the same as anyone else’s, but it’s still worth pursuing.  And if you can lower your expenses, diversify your income, create flexibility in your schedule, avoid becoming a workaholic, and earn enough money to support yourself, you’ll be a lot closer to shaping your future around what you really want.

I could tell from reading Tammy’s blog, Rowdy Kittens, that she and I see a lot of things the same way.  I thought that my readers would be especially interested in knowing some of the details about Tammy’s happy, frugal life, and she agreed to an interview.

Tammy, thanks for being here with us today, and congratulations on the release of your new book, Smalltopia.

FB:  When you quit your job to become self employed, how much of a savings cushion did you have?

Tammy:  Before I left my job, we saved a year’s worth of our expenses (about $25,000). For anyone who is thinking of leaving a “traditional” day job, make sure you evaluate what your expenses are and what you really need. I also recommend reading, Your Money or Your Life and Unautomate Your Finances.

FB:  How long did it take for your own little business to be able to support you?

Tammy:  It took about a month for my little business to start making money. During the first month, I didn’t make a profit. But after I launched my first ebook, Simply Car-free, I was able to pay my bills. And slowly but surely I acquired more freelance writing and web design work.

FB:  People who are considering leaving their jobs to seek out something new are often very concerned about health insurance. Was that an issue for you, and what did you do about it?

Tammy:  Prior to leaving my day job, we thought a lot about health insurance.  I knew it would be risky to leave an organization that had such good benefits, but it was a risk I was willing to take. In my opinion, it’s just as risky to stay at a job you dislike.

Health insurance is a very complex topic and the type of plan you chose will depend upon your health and the risk you want to carry. I’m not an expert on this topic and strongly encourage folks to talk to a health care broker and examine a variety of health care plans before making any big decisions.

FB:  You’ve made a lot of downsizing steps over the last few years.  What changes would you say had the most impact on your ability to live so well on a reduced income?

Tammy:  By selling both my cars, I save about $12,000 per year. By going car-free we were able to pay off our debt and save a lot of extra money. And that gave me the freedom to leave my day job and pursue an unconventional career path. If I still owned a car, I would be saddled with debt, and stress.

FB:  If your income were to double overnight, would you make any major changes to the way you live now?

Tammy:  First, I would donate more of my income to charity. Second, I’d build a tiny house. Other than that, nothing would change.

FB:  What’s your favorite form of low-cost entertainment?

Tammy:  Having fun doesn’t require spending a lot of money or heading to the mall. Instead, I focus on doing things that make me incredibly happy. For instance, I love taking long walks in the park, going for bike rides, and doing yoga at home.

A few years ago I would have spent the day at the mall shopping, searching for happiness. Buying extra stuff didn’t make me happy and consuming more hasn’t done much for the planet or overall state of “happiness” in the U.S. Thanks to the ideas promoted by simple living movement I’m able to take advantage of beauty in everyday life. I’m satisfied with my possessions and I feel like I have enough.

FB:  What does an average day’s menu look like at your house?

Tammy:  Most of the time, we eat a lot of fruit, vegetables, grains, and bread. Lately, we’ve been making a lot of quinoa. It’s my new obsession.

FB:  Do you have any expenses that you consider splurges or luxuries, or do you focus entirely on the basics?

Tammy:  Sure. I think everyone loves to splurge once in a while. I love drinking coffee and eating out occasionally. We don’t eat out often, but I do spend a lot of time in coffee shops. So my monthly coffee budget is fairly large and I’m okay with that.

Thanks Tammy!  We definitely see eye to eye on a lot of things.  I’ve found that simple pleasures make me happier than any material possession ever has, and I can’t remember the last time I went to a mall.  You’re an inspiration, and I wish you all the best with your little business!

Today, I decided to see what I could do with this recipe for zucchini cakes.  I know, a Paula Deen recipe seems like the last thing on Earth that I’d cook, but this worked amazingly well with the adaptations I made, and it used up a ton of zucchini.  My guys both loved it, so I thought I’d share.  I only had one yellow squash on hand, so I used that and five zucchini.  I used a mixture of dry oats and bread crumbs instead of just bread crumbs.  I also used Daiya vegan cheese (mozzarella – I buy it in bulk at the food co-op) instead of the Parmesan cheese.  And instead of an egg, I used a tablespoon of ground flax seed (I didn’t add any extra water at this step, because the zucchini was still pretty moist even after I pressed most of the liquid out of it).  I was out of Italian seasoning, so I used Old Bay instead.  And I added half of a bell pepper to the food processor when I was chopping the onion, simply because it was taking up space in the fridge.  If you eat eggs and dairy, by all means use the ingredients called for in the recipe.  But this recipe worked great with the substitutions I made, so it’s pretty flexible, and can easily be adapted for people who are sensitive to those ingredients or choose to not eat them.

There was no way that I was going to fry anything in half a cup of butter, so I decided to bake my creation instead.  Instead of making cakes, I turned it into a casserole and just baked it for about 40 minutes at 350 degrees.   We devoured two thirds of it at lunch today, along with some fresh ears of corn from our backyard.

Right now, I’m loving recipes that use up lots of zucchini.  And a recipe that has zucchini as it’s primary ingredient is likely to be pretty inexpensive at this time of year… if you aren’t growing your own, chances are someone you know is, and will be more than happy to share!

I have found that people – even those who are fans of traveling light – start schlepping LOADS of stuff once they have a baby.  I’ve watched vehicles get packed for a three day trip and the entire trunk is filled with baby stuff.  And it doesn’t look like fun.  Let’s face it, traveling with a big purse like Miss Minimalist uses is a lot more convenient than dragging a huge suitcase all over the place.  So why not try to continue to keep it as light as possible, even with a baby or toddler?

Here’s what we’ve done to minimize the amount of stuff we have to take with us on trips since our son was born:

1.  This past weekend was the first time we’ve ever taken a stroller anywhere (I use a jogging stroller all the time when we’re home, but it’s bulky and not something I’d want to try take on a trip).  We got a tiny umbrella stroller (it folds up into a cylinder just a few inches in diameter) at a thrift store for two dollars, and we stuck it in the trunk next to the golf clubs so that I could take our son for a long walk while the guys were golfing.  This would not have gone with us if we had been traveling by air.  Other than this trip, we’ve always used a sling to carry our son, or else he rides on my husband’s shoulders or walks along next to us.  I’m a big fan of the Moby Wrap that I got secondhand when our son was a few months old, and he went everywhere in that until he was about 18 months old.  A wrap or sling can be stuffed into a diaper bag – you can’t do that with a stroller.  Having a baby on your chest or back makes traveling pretty easy.  Not only does the sling take up almost no space, but you also have your hands free to carry other stuff.

2.  Co-sleeping means that you don’t have to haul a portable crib.  Or if you’re going to visit family or friends, you can see if they might be able to borrow a portable crib from someone in the neighborhood during your visit.  Hotels will usually bring roll-away cribs.  Or you can pretend you’re camping and kids can sleep on a blanket on the floor.  Be creative!

3.  Breastfeeding.  This one is pretty self-explanatory.  If you’re breastfeeding, there’s no need to bring bottles, formula, bottle warmers, a cooler, etc.  And if you plan a trip that involves staying near your baby most of the time, you can also avoid bringing the breast pump.  Our son nursed for two years, and he never drank from a bottle.  This was truly not a challenge at all for me – nursing him was something I loved (after the first couple painful weeks!) and it never seemed inconvenient at all.  That said, I nursed him anywhere and everywhere.  I had no problem nursing him in public, and I never even got so much as a sideways glance (lot of smiles though!) for nursing in public.  When we flew in March, I was still nursing our almost two-year-old, and it definitely made the plane ride easier.

4.  Kids don’t need as many clothes as we think they do.  Yes, babies do have blowouts.  But they really aren’t that common.  And tiny baby clothes are pretty easy to wash in a sink.  Babies also spit up, but that doesn’t mean that you have to immediately change the outfit.  Usually it can be cleaned with a wet cloth and all will be fine.  Toddlers get dirty.  That’s just the way it goes.  Our son is attracted to dirt, mud, leaves, sticks, and dust.  If I changed him every time he got dirty, I’d do little else.  So I just don’t worry about it.  I do keep a spare outfit in his diaper bag, and it sometimes comes in handy (like the day he stepped into a pond wearing jeans, socks, and shoes, and went in up to his waist).  But I had a spare outfit in his diaper bag all last winter and he never needed it at all – he outgrew it before we ever used it.   So when we went away for our three day weekend, he wore one outfit, and we packed two more.  Three outfits, three days, and it worked perfectly (if one had gotten hopelessly wet or dirty, he’d have just worn another outfit two days in a row – no big deal).

5.  Shoes.  Our son wore one pair of shoes (the Keens that I got for two bucks earlier this summer) and we packed a pair of sandals for him (these, found in brand new condition at a thrift store for a dollar) as we knew we’d be spending some time at a park with lots of water fountains.

6.  Toys, books, and other entertainment.  We never bring anything like this with us on trips.  We have an iPod Touch and we’ve downloaded several free toddler apps to it.  We took that along when we flew to visit my in-laws last spring, and it worked great as airplane entertainment.  We took the iPod along for our weekend trip, and it came in handy when we were out to dinner and waiting for food.  But most of the time, our son is really good at entertaining himself.  I think this might have something to do us not having a TV.  We encourage him to use his imagination a lot, and spend lots of time playing in the backyard.  He had no problem with the four hour car trip each way, because he liked looking at all the scenery.  And once we got to grandma and grandpa’s house, he entertained himself playing with pine cones and sticks in the backyard.  It’s really never occurred to us to pack toys when we go anywhere.

So all we took along for our son this past weekend was the tiny umbrella stroller, a tote bag full of diapers, and a small back pack that held stuff like his clothes, jacket, pajamas, swim trunks and sun hat.  The bag full of diapers was by far the biggest thing, but hopefully we won’t be needing those for too much longer.  It’s definitely possible to travel light, even with a baby or toddler – you just have to think outside the Babies-R-Us box.  Not only is is much more convenient to travel with very little stuff, but if you’re flying, it’s also less expensive now that airlines are charging so much extra for checked baggage.

We have several retirement accounts.  Roths, traditional IRAs, SEPs through our business, and our HSA (which we consider a retirement account, although it has the added bonus of being able to be used to pay for medical expenses at any time in our lives, and the money will always be tax free if we need it for medical expenses.  Otherwise, it works like a traditional IRA – tax deductible when we contribute, taxed when we withdraw).  We are somewhat heavily tilted towards mid-cap funds (here’s a good Boglehead thread about the advantages of mid-caps).  We only own one individual stock (Vodafone).  Everything else is in very low-cost index funds (including bond funds) and REITs.  We have our SEPs with Vanguard (and we also have an emergency fund with Vanguard, made up of municipal bonds.  Even though it’s a taxable account, we don’t really pay any taxes on it, since muni bonds are tax exempt) so we’re able to take advantage of Vanguard’s very low cost funds.  My husband has an IRA with Fidelity, and we put all of our purchases on our Fidelity AmEx card to get the 2% rewards deposited into his IRA.  We also both still have our IRAs with Ameritrade.

Our HSA is invested through Saturna in Amana’s growth fund (AMAGX).  When we first started putting our money there, we did so because it had good returns, no contribution/withdrawal/use fees, and seemed like a user-friendly HSA.  It was later that we discovered that AMAGX operates according to Muslim investing rules, and does not invest in alcohol, pornography, casinos, or non-Islamic banks.  Technically it’s considered a socially responsible fund, although it’s not really what I think of when I think about social responsibility.

Vanguard has a socially responsible index fund (VFTXS), but it just doesn’t perform as well as the market as a whole.   Basically, the conclusion we’ve come to is that we want our retirement investments to perform as well as possible – period.  That said, we don’t own any shares in Monsanto or tobacco companies, because they aren’t included in AMAGX, and that’s the only large-cap fund we own.  Since we invest primarily in mid-cap funds, we tend to avoid the worst offenders, since those are usually big companies with more clout.

Some parents would rather go back to work, and they feel more fulfilled with both a career and a child than they would staying home full time.  And the opposite side of that is the parents who know that they want to stay home and have planned for it long before their first child arrives.  In the middle are the parents who aren’t sure.  And the ones who would stay home with their kids if money were no object.

The money issue is tricky.  If you’re used to living on two incomes and have expanded your lifestyle to use up all or most of those two incomes, the option to have a parent stay home with a child will require more than just a letter of resignation.  It might mean getting rid of a car, cutting back on shopping trips and vacations, or even moving to a less expensive home.

I’m very fortunate to be in a situation where my husband and I both work from home.  We spent five years growing our business before we had our son, and purposely structured it so that we are both home most of the time.  The most important thing we’ve done though is to not inflate our lifestyle as our income grew over the years.  As a result, a good chunk of our income goes into savings and extra mortgage payments.  The future is never certain, but if our business were to stop making money, we could continue our current lifestyle on less than an average single income (obviously we wouldn’t be able to continue saving and paying off the mortgage at our current rate, but we’d be able to get by).  We could have bought a more expensive house or upgraded our cars, but that would have increased our monthly expenses and put us in a more precarious situation in terms of needing a higher income just to get by.

This isn’t about whether parents should stay home with their kids.  That’s a decision that has to be made by each family, and is a highly personal one.  But if you focus on keeping your expenses (especially for the biggies – housing and transportation) as low as possible, you give yourself more options than you have if you spend everything each month.

I wanted to share the story of the house that two incomes built because I find it inspiring to see people making drastic changes in their lives in order to focus on what they want most.  Obviously this sort of thing is not limited to staying home with children.  It could be about starting your own business or retiring early or setting out to travel the world.  What matters is that we actively choose our path and make decisions with our goals in mind, rather than falling victim to advertising and debt.

Would you move to a much less expensive home/area in order to be able to work part time, stay home with a child, focus on volunteering, travel, etc?

“You bring up a good point, and getting rid of my car is something I’ve considered. However, I can’t see a way that it would make sense, financially or practically. Pretty much the only time I need to use it is when I go to the city about ten miles from here. We’ve tried riding our bikes in there, but the only roads into town are fast, with small shoulders, and we just don’t feel comfortable on them. There is no public transportation between here and there. And there are no places to rent a car in our town. I wouldn’t feel comfortable borrowing a neighbor’s car – we know our neighbors well enough to say hi and chat for a while, but borrowing someone’s car (for me anyway) would require a lot closer relationship than that.
I did the math a while back about how much my car is costing us. I always average at least 32 mpg, city and highway combined. If we were to borrow or rent a car for the 3000 miles I drive each year, we’d still have to pay for that gas (and there’s no public transportation here, so that’s not an option). I pay $250/year for insurance, and $65/year for registration. And in the seven plus years that we’ve owned my car, we’ve spent less than $1500 total in maintenance (including a new windshield, as the original one was cracked when we bought the car). So my car is costing us just over $500/year plus gasoline costs. (We paid $2300 cash for the car in 2003, so there has never been any monthly cost associated with buying the car).
It’s hard to see how we could get rid of the car and come up with an alternative way of getting around when we need to leave our town, that would cost less than $500/year. I’ve read that the average American spends something like $8000/year on a car, and in  that case, I’m sure there are much more financially practical options. But I’d say I’m on the low end of the scale in terms of transportation costs, and there just aren’t that many other alternatives in a town with no car sharing program, no rental places, and no public transportation.”

Henry replied with a perspective about how much his own car used to cost, living in Europe, and how much better his life is now that he no longer has the car (a common theme that I hear quite a bit from other car-free folks):

“I keep forgetting just how cheap cars are to run in the US. I don’t know whether this makes you all very lucky or very unlucky. The maths you gave would be quickly dismissed as hopelessly naïve and the worst kind of wishful thinking in Europe. $500 a year!! I live in Austria – let me share my equivalent calculations for the car I used to have (2005 VW Sharan). The car was €23,000 when I bought it back in 2007. Since then it depreciated to €15,000 when I sold it a few months ago. I averaged 7 litres per 100km (Google says that’s 33.6 mpg in your language) and drove about 15,000 mostly unnecessary kilometres annually. At €1.20/litre (very approx. $6.50/gallon) that’s quite expensive. Because we had a small knock a couple of years back, our insurance was €1,712 (not a typo!) last year. I have averaged about €1,200 in annual servicing costs and for things like new winter tyres and a new air conditioning system. We also have motorway vignettes, annual parking fees in our town, etc.

The thing is, although I’m not exactly rich, I could afford it easily, so never questioned whether it represented value for money. When I started taking my finances by the scruff of the neck earlier this year, I was shocked at how much it cost to run – the best part of €8,000 a year! I knew cars were expensive, but I didn’t realise that it was such a drain on me. To top it all off, most of the driving I was doing was to out of town clients so that I could earn enough money to pay for the car. The money I was making by going out to them almost exactly balanced the cost of the car. I got rid of the car and the clients and am in the same shape financially, even when the cost of the occasional taxi or car hire is included. This means I now have time to play football (soccer) in the park with my kids and I also have one less thing in my life to worry about. I love how liberating it is to get rid of stuff.

Sounds like there might be a business opportunity for a start-up car sharing business in your community. ?”

Henry’s experience with owning a car sounds a lot more like the average costs here in the US than my own experience (except for the gasoline cost – I’ve always thought that if the US were to catch up with the rest of the world in terms of the price of gasoline, there would be a lot less driving here).  The main reason my insurance and registration are so low is because my car is 19 years old.  Registration fees are based on the value of the vehicle, so if I had a $25,000 car, I would be paying a lot more to register it each year.  And because my car is worth so little, I only carry liability insurance.  I have lots of liability insurance, as that’s not something I feel is worth scrimping on – if I ever need it, I want to be sure that there’s plenty of it there.  But there’s no need to pay to insure against damage to my own car, as the cost of the insurance would quickly exceed the value of the car.  One thing that I’ve done to keep my insurance costs as low as possible is to be a very careful driver.  I’ve never had a ticket in my life, which helps quite a bit.  We also have our liability umbrella policy and our homeowners policy with the same company that insures our cars, and that gives us a 15% discount.

I have been very fortunate in terms of how few problems my car has had over the years.  It’s a Honda, and I’m convinced that they build very good cars.  But a huge part of it has to do with how little I drive.  If you only drive 3000 – 4000 miles per year, it makes sense that your car will last three times as long as one that is driven 12,000 miles per year.

I did seriously think about selling my car earlier this summer.  We would still have my husband’s car (a 20 year old Audi that has similar maintenance, insurance, and registration costs as my car), but his has far less room in it for things like the dog and groceries.  His car has about 100,000 fewer miles on it than mine though, so it wouldn’t have made sense at all to get rid of his and keep mine (even though my car has been going strong for years, it does have 221,000 miles on it, and I realize it’s not going to last forever).  I checked the Blue Book value on my car, and it was about $1000.  But we decided that the convenience of having the car is worth more to us than the thousand dollars would be.  There’s plenty of space in our garage for my car, and there’s no issue with parking in our town (if we lived in a city where we had to pay for parking, that would sway things more in favor of getting rid of the car).

If and when we get to a point where my car needs extensive and very costly repairs, we’ll reconsider.  But for now, we figure that we might as well keep it as long as it’s running well and costing us so little to insure, register, and maintain.  And of course, I am always focused on how I can reduce my mileage as much as possible, and use the car only when I really need it, as opposed to every time I need to go somewhere.

What do you think?  I know it’s very feasible to live without a car in a big city that has public transportation and car sharing programs, but have any of you done it while living in a small town without any of those resources?  What does your car cost you each year?  How high would that number have to be to convince you that the car’s not worth it?

I dropped off a couple more boxes at the thrift store last night when I was in town (my mom, who used to love thrift store shopping just as much as I did, referred to the thrift store yesterday as the “give away store” which is what it has become for both of us).  I ducked inside quickly looking for a flower pot for a plant that has outgrown it’s planter, but didn’t see anything suitable and left within about five minutes of walking in the door.  It’s amazing to me that I have been able to completely do away with my thrift store shopping habit, and how happy that makes me.  There are tons of resources on the internet about decluttering, and I started reading a lot of them a few months ago.  Apparently they had quite an impact, because I no longer have any desire to accumulate possessions or add “stuff” to our life.  Instead, I want to be able to spend time experimenting cooking in the kitchen, hanging out with my husband and son, going for walks, doing yoga, having “adventures” at the park (that’s how our son and I refer to our little trips to the playground).  Acquiring stuff has never really been fulfilling in the long term for anyone.  But for most of us (including my former self), it is quite fulfilling in the short term.  Then it wears off and we have to go hunting for new stuff in order to continue to be satisfied.  Thankfully, I always got my fix with used things, so the cash outlay was never very big.  But the clutter factor is there, regardless of whether the stuff comes from Neiman Marcus or a dumpster.  And I just don’t want the clutter anymore.

Until this past spring, my trips to town were pretty much a weekly thing, and just about always involved at least a half an hour (usually more) of browsing around the thrift store before heading to the grocery store.  Invariably, I would find at least a few treasures that I just had to have.  These days, I can go to town and back in less than an hour and half total, and not only do I not come home with stuff from the the thrift store, I also usually have at least one box that I donate while I’m in town.  Much better.

We decided to sit down and crunch some numbers to see if this would really be a good idea.  We loved the thought of a 3.75% interest rate, but would refinancing really save us money in the long run?

You’ve probably seen personal finance websites that caution against looking just at the monthly payments when financing a car.  Instead, they advise that you look at the total purchase price plus total interest and consider the total cost of the vehicle rather than whether you can afford the monthly payments.  We do the same thing with our house.

The total cost of the house (principle amount plus total interest over the life of the loan) is more important to us than the monthly payment amount.  We plan to stay here forever (I know, we said that before… but this time we mean it!) or at least for a very long time, and paying off the loan is one of our top priorities.

We used a mortgage calculator from Bankrate, which I like because it allows you to enter odd numbers for the total length of the loan.  Here’s the nitty gritty:  We currently owe about $152,000 on our house.  Our interest rate is 4.625%, and we have about 12.5 years left on our 15 year loan (we’ve been in the house a year but we’ve been making extra payments ever since we moved in).

We can refinance at 3.75%, but it would start our loan over again at 15 years, and it would add about $4500 to the outstanding balance (refinancing would cost between 2 and 3 percent, and I’m going with the higher end to err on the conservative side).  So we would then owe about $156,500 on the new loan.

We pay extra on our loan every month, but there’s no way to be sure that we’ll always be able to do that.  So I wanted to look at both an early payoff scenario as well as the total interest we’d pay if we kept our mortgage for its full term.

In our current loan, if we stop paying extra and take the full 12.5 years to pay it off, we’ll pay about $48,400 in interest between now and the time we pay it off.  If we have the loan paid off five years from now (our goal), we’ll only pay $18,600 in interest between now and the time we pay off the house.

If we refinance and don’t make extra payments, we’ll have a payment about $200/month lower than what we have now, but it will be for 15 years rather than 12.5 years.  And over the course of that time, we’ll pay $48,400 in interest.  Yep – the same amount (I rounded my numbers, but the actual values were within $70 of each other).  If we refinance and then add the same amount of additional payment that would allow us to pay off our current loan in five years, it would take 5.5 years to pay off the new loan (because of the extra $4500 tacked on for closing costs).  And the total amount of interest paid would be about $16,900.  That is less than we’ll pay over the next five years with our current loan, but only by about $1700.  That is far less than the closing cost of the refinance, even if we were able to get a new loan with a 2% closing cost.

So basically, even though the monthly payment would be $200 lower, we’d still be paying the same amount of interest if we kept our loan for the full term, and we’d be paying for the closing costs of the loan too.  If we continue to pay extra each month in order to pay off the house quickly, we’d save about $1700 in interest with the new loan, but that doesn’t make up for the closing costs that would be tacked onto our loan in order to refinance.

So… we aren’t going to refinance.  Sure, it would give us a lower monthly payment, but that payment would be set for the next 15 years rather than the 12.5 years on our current loan.  And refinancing won’t really save us any money in the long run.

I know that it’s a great time to refinance if you’ve got a higher interest rate, but since our rate is already pretty low, the math just doesn’t work out.  Are any of you considering a refinance right now?  What’s more important to you – the monthly payment, or the total cost of the house?