It’s Been Two Years Since Our Refinance

Two years ago we completed the re-finance of our house.  I thought I would go through some of the numbers and things that have happened.

Original Loan: 30 year mortgage, 5.875%, closed July 2007
New Loan: 15 year mortgage, 3.375%, closed November 2011

Increase in monthly payment: $157.69

Reduction in total term: 10 years, 8 months

Principal paid on new loan in the first 24 payments: 10.67%
Principal paid on old loan in prior 24 payments: 4.97%

Amount ‘extra’ paid on new loan over last 24 months: $0Amount ‘extra’ paid on old loan over the prior 24 payments: $4,144

Number of months before euphoria of making double the impact wore off: 2

Number of times I’ve regretted not taking a longer term re-finance so that I could have extra cash each month: ~5Average amount of time (in seconds) for me to completely dismiss that idea as ‘the crazy talking’: 4

Happiness on a scale of 1 to 10 when my tax preparer followed up to make sure that the reduced interest amount for 2012 was correct: 10

My calculated age at end of original 30 year term: 62My calculated age at end of new 15 year term: 52

My kids ages at end of original 30 year term: 28 and 26My kids ages at end of new 15 year term: 17 and 15

So, some things to take away from the above numbers:

  • mb-201311contractIf we stay in our home and don’t make any adjustments to the mortgage, we will have it completely paid off prior to the kids starting college, which has always been a goal of mine.
  • We would also have at least 10 years of being mortgage free while still being in the workforce.  This would definitely help set the table for a more successful retirement.
  • When I was still paying on the old mortgage but working through the details of the re-fi, the numbers were incredible to me.  By paying essentially what I was paying anyways every month, I’d be making almost double the impact.  That was awesome for the first couple of months.  Luckily, I anticipated this.
  • Paying the mortgage off early is not a priority right now.  Any extra money goes toward savings goals such as saving for a new car, home improvements, travel, or retirement.
  • If I were to pay the mortgage early, I would likely do so when I could pay off the entire balance at once.  So, if I made a boatload in the stock market and my trading account balance (after taxes) exceeded my mortgage balance, it would be then that I might consider a payoff.
  • We are nowhere near that possibility in our current state.
  • But I’m OK with that.
  • I think we chose the perfect term length.  It doesn’t crimp our lifestyle and keeps us honest to our savings goals.  The truth is that extra cash flow would be nice, but wouldn’t be worth it at all.

 I know many of you must have taken advantage of the low rates back around the time they hit thier low point.  I’d love to hear from those who have had their re-fi’s and how you’ve fared, emotionally and financially, in the subsequent months.

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I Still Can’t Justify Walking Away

Last year I wrote a post outlining why I think people who haven’t lost their income should pay their mortgages regardless if their home values have gone down.

I’ve seen this topic resurface over the last few weeks.  It seems that more and more people and bloggers are leaning towards saying that ‘It’s OK’.  A lot of this had to do with a financial planner’s story of how he went through this with a Las Vegas home.

Since it’s been awhile, I thought I’d reconsider it and see if my opinion has changed.

Short answer: It hasn’t.

See, Ninja at Punch Debt in the Face wrote how his opinion has changed, largely because he now sees it as the bank and customer entering into a deal, but that people and businesses break deals and end contracts all the time.

If it were that simple, I would be 100% in that corner.

But it’s not that simple.

Because it’s not just about the bank and the customer.  Everybody who walks away from their mortgage impacts much more than that.

If you live in a neighborhood, your walking away affects the value of every single home around you. You’re impacting every one of your neighbors.  Not to mention that a home that might go empty is at risk of falling into blight, something that can spread quickly.

So, you’re impacting all your neighbors.

Plus…

Most likely, if you stop paying on your mortgage, you stop paying your taxes.  That means, everybody that lives in your community is affected by taking in less tax revenue.

So, now you’re affecting everybody in your city, including schoolchildren who get less tax revenue.

And it goes further….

The economy hasn’t gotten a firm boost in almost five years now.  We may no longer be in a recession, but we’re certainly not out of the woods or in a growing economy.  Much of this has to do with the drag that housing puts on the economy.

So, yes, I am putting it out there that walking away hurts every single person in the country.  Maybe even in the world if we want to go that far, since the global economy is here and pretty much every decision is far reaching.

Yes, banks may have ‘started’ it by making stupid loans and letting the bubble get created.

I get that.

But, now the banks are done with that.  Sub-prime mortgages are a thing of the past.  Loans to unworthy customers are pretty much impossible.  Yet the problem continues.  Why?

Well, it’s not the banks right now.  The banks have done their part.  Whether it was forced on them or not, I don’t really care.  But, the problem remains now because people, not banks, are continuing to drive the market down with the vicious spiral that walking away creates.  And, now it’s on the people to stop the madness.  Not the banks.

There are options now.  You can re-finance at historically low rates.  By doing so, you can pay the same amount every month and have your principle payment fall by over twice as much as what you are currently paying.  You will be above water that much faster, all while helping stabilize your neighborhood, your community, and the economy as a whole.

So, please, let’s think about doing the right thing.  If we really allow ourselves to be talked into the notion that walking away is OK, then guess what?  We’ll still be talking about this for years to come.

Nobody wants that, right?

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The Funniest Part Of The Mortgage Re-Finance Conversation

As I mentioned earlier in the week, we’re looking to re-finance our home loan to a much more manageable 3.375% rate on a 15-year mortgage compared to the current 5.875% 30-year loan we have today.

The conversation with the loan agent went remarkably well, but the part that had me laughing was when she was giving me our credit scores (over 800!) and said “Oh, I notice you don’t have one of our ??? credit cards.”  I don’t even remember the name of the card, but I politely declined.

I couldn’t help but laugh and it does show that there is humor to be found when talking to a bank.  You have to keep your eyes out everywhere for people trying to get you into the latest and greatest credit card.

I can only begin to imagine what they’ll bring at closing, assuming we get that far!

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Jumping On The Re-Finance Bandwagon

With interest rates on mortgages falling, I couldn’t help but be intrigued when I saw 3.375% on a 15-year mortgage.

The biggest, problem, I thought, was that we had nowhere near 20% equity in our house, so I wasn’t sure if a re-finance would mean one or more of the following:

  • I’d have to bring a big chunk of money to the table to get to the 20% line
  • I’d have to start paying an escrow fund (we pay our own taxes & insurance and I would prefer to keep it that way)
  • I’d be forced to pay PMI which would probably wipe out some or all of any savings.

Still, 3.375% is 3.375%, especially when you’re currently paying 5.875% on a 30-year note.

My mortgage is with Citi.  I went online, as that’s where I do all of my business with them, and filled in a few fields that would allow for a mortgage rep to contact me.  I figured it would take a few days.

It took ten minutes.  My cell phone rang and I picked it up.  I talked to a very nice lady who actually gave me some really good news.

Turns out, under the Making Homes Affordable program, if your loan is backed by Fannie Mae and you do a re-finance with a current lender, you can get a re-finance with the same terms, even if you’re under the 20% equity level.  Since our loan is Fannie Mae backed, we would qualify for this.  I even confirmed that there are no income thresholds with this provision, and she assured me there are not.

She did a quick run of my wife’s and my credit, and we both got over 800, which is awesome and it locked us in at the 3.375% rate.

Now, I’m not getting my hopes up as I’ve heard so many horror stories about things going wrong, but since many of those seem to be around the foreclosure process, which isn’t us at all, I’m hoping for a smooth sail.

If everything goes according to what we discussed, we could roll the existing mortgage balance into the new loan.  We could even roll all closing costsm except for the appraisal and application fees, in as well.  I’ve never rolled in closing costs before, but with the difference between the loan and the savings account I use (an Ally Demand notes account) being right around 1%, it’s tempting.  We’ll see.

With the loan balance and the high range of the estimated closing cost, our monthly base payment would go up $155 from what we pay today.

Can we handle that?  Yes, and then some.  Reason being, we currently add at least $200 to our current base payment, as a result of having paid off a student loan balance and deciding to re-direct the monthly payment.

That would result in a monthly increase of over $400 toward principal versus what we’re paying today.  Pretty big difference, plus it would result in the loan being paid off four years earlier than if we were continue paying what we pay today.

From a cash flow perspective, it’s pretty much a wash as the payments would be roughly the same.  But paying that much more towards principal every month would be a huge boost to our net worth and would allow us to re-build equity in our home faster, which is probably what the entire program is designed to do.

I’ll keep you updated.  Not getting my hopes up too much just yet, but really hoping it works out!

Have you re-financed or considered a re-finance?  If not, what’s holding you back?

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