refinance

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.

Why I’m Glad I Have Someone Do Our Taxes

I’ve been lucky enough to have someone do my taxes for as long as I’ve ever had to file them.  How did I get so lucky? Because my dad has been lifelong friends with the guy that does them, and he’s always treated our family very well.

I’ve never questioned his ability, but whenever I see something I don’t understand on a tax return, I ask about it, for the simple sake that I want to understand things.

We re-financed our mortgage last year, so when I was estimating our tax return, I entered the closing costs, but when our tax return came back, this wasn’t on here.  Only a small portion was.

I knew he was correct.  He always is.  So, I didn’t sweat it and in fact I waited until after tax season was done before I dropped him an e-mail asking why the closing costs were nowhere to be found.

He wrote back explaining that for a re-finance, the deduction is spread out over the original term of the loan. Our deductible closing costs were roughly $1,200 for the 15-year mortgage, meaning that we’ll see roughly $80 written off each year for the next 15 years.  In fact, there was $20 written off in 201, which makes sense given that we re-financed with three months left in the year.

(FYI: For an original mortgage on the property, you can write off the entire closing amount for the year in which the closing took place.)

Good to know!

When it comes to doing taxes, I know that I could likely enter the big stuff.  But, honestly, it’s the little stuff like this which makes me really, really glad that we have someone do our taxes.

And not just any someone, but someone we completely trust.

Do you  have someone do your taxes?  Did you know about the re-finance amortization requirement when it comes to writing off the closing costs?

Closing Day!

This afternoon is our scheduled closing.  It amazes me how many details are rushed until the last minute.  At T-minus 24 hours, I didn’t even know the final mortgage amount.

I had gotten confirmation that the closing was taking place via an e-mail.  I requested a change from the info (they were still using my wife’s maiden name which is how it was on the original mortgage since we had not yet gotten married) and had inquired about final numbers.  A lady called and still said ‘everything was in process’.

They also told me that I would likely be getting a check at closing, because they’d overestimated the closing costs in the Good Faith estimate, but had kept the same mortgage amount.  I said that I wished that she could just change the mortgage amount so it would be a net-zero transaction, and she told me ‘Oh, no problem, we can still do that’.

With less than 24 hours to go.  But she assured me that this happened all the time and that everything is going, in her words, ‘Great!’

Makes me nervous but so far everything has been smooth sailing, so let’s keep our fingers crossed.

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!

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?