Deciding When To Refinance Your Mortgage

December 21, 2008

I was recently propositioned by my original lender. He offered me a new 30-year fixed mortgage at 5.25%, which is a full 1% lower than my current 6.25%. This would save me roughly $200 on my monthly payment. Sounds great right? The catch is that I would have to pay closing costs to the tune of $1,600. Also, I would be starting over again on a new 30-year fixed mortgage.

Factors Affecting Refinancing Your Mortgage

  • Interest Rate – Obviously, the major driving force in refinancing a mortgage is the interest rate. Everything else equal, the lower the interest rate, the lower the monthly payment. The sudden increase in mortgage refinancing inquiries is due to the dropping interest rates. The current national average for interest rates on a 30-year fixed mortgage is 5.27% via bankrate. There’s a common misconception that you only refinance your mortgage if you’re lowering your interest rate by 1-2%. Really, what it comes down to is how long until you reach your break even point.
  • Closing Costs – Closing costs are the major drawback when considering whether or not to refinance your mortgage. Closing costs can be as high as 2-3% of your loan amount and they can be completely waived. Also, you can use negative points, which involves a higher interest rate, to cancel out your closing costs.
  • Break Even Point – Your monthly payment and closing costs effectively determine your break even point. To determine your break even point you take your monthly payment savings and divide it into your closing costs. This will tell you how many months worth of payments will transpire before you recoup your closing costs. After determining how long it will take to reach your break even point, all you have to do is think about how long you plan on keeping your mortgage and evaluate based on your current financial needs.
  • Remaining Length of Mortgage – When you refinance your mortgage you are agreeing to take on a brand new mortgage. You are not keeping your old mortgage with a new rate. If you have already made 5 years or 15 years of payments do you really want to agree to 30 more years? That may not sound like a good idea, but you can take your monthly savings with the lower rate and add it in as an extra principal payment. Also, you can always try to refinance your loan into a shorter term loan.
  • Type of Current Mortgage – The type of mortgage can be a defining factor when deciding to refinance. You might have enough equity in your property to refinance into a 15-year fixed rate mortgage and save some money on interest payments. You might have an Adjustable Rate Mortgage (ARM) where you want to refinance into a fixed rate mortgage. If this is the case, you might even take a higher interest rate than your current ARM rate because the interest rates will raise in the future.
  • Prepayment Penalties – I don’t know how frequent prepayment penalties are a factor for mortgages. I don’t have a prepayment penalty associated with my mortgage. These penalties are used by lenders to make sure they don’t lose out on the interest they feel they are entitled to since every extra payment on principal results in less interest earned by the bank. If you do have a prepayment penalty just add that to your closing costs when determining your break even point.

Conclusion

I decided not to take the refinancing deal from my original lender that I described above, because I did not like my first experience with him and I feel like I can get a lower rate. Although, my break even point with that deal was only 8 months, which is good considering I plan on staying in my condo for at least 5 years.

I don’t have a prepayment penalty and I don’t have to worry about my current mortgage as I’ve only made one payment. My original lender sold my mortgage to Wells Fargo, who I have been very happy with so far. I will most likely look into refinancing through them to give them a chance to keep my business. If I don’t find an acceptable break even point I will start looking around at other banks.

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My First Mortgage Payment And Updated Amortization Schedule

December 19, 2008

I made my first mortgage payment on December 15th, which is 2 months and 12 days after closing on my condo. I used the two and a half months with no payments to build up my cash reserves, pay for furniture purchases and start saving for retirement. Now that I have started making mortgage payments, I’ve decided to update my amortization schedule (see below) with the official loan value, interest rate and monthly payment. I originally posted an estimated amortization schedule, along with information to create your own amortization schedule.

amortization-schedule2

An amortization schedule is very important to create and interpret, especially when deciding whether or not to refinance. With the dropping interest rates, I may be afforded the opportunity to refinance at an interest rate below 5%, which would decrease my monthly payments by over $200 and allow me to make extra principal payments.

Amortization schedules allow you to see how much interest you will be paying over the life of your loan. They allow you to see how much extra principal payments decrease the length of your loan, as well as the amount of interest you pay.

As you can see from above, my first month’s payment was $1,392.75. $1,178.13 went towards interest, while only $214.63 went towards my principal. The paltry amount that went towards my principal makes me want to make additional payments towards principal to help build more equity in my condo. I now have to weigh whether or not I want to pay a little extra towards principal or save for my retirement. At least initially, I think the retirement savings will win.

In the near future, I will be playing around with my amortization schedule in excel to see how much extra principal payments may benefit me. Also, I will be looking at how decreased interest rates will enable me to save more for retirement and pay more towards my principal.

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Dropping Mortgage Rates And My Current Thoughts On Refinancing

December 18, 2008

My mortgage lender called me today to offer me a 5.25% interest rate if I refinanced my mortgage. This would lower my interest rate by 1%, which amounts to $200 a month in savings. The catch is that I would have to pay closing costs again, which are $1,600. In a strictly financial sense, I would break even after 8 months. In the end, I think I’m going to hold out for a lower rate or a lender that will waive or reduce the closing costs.

Dropping Mortgage Rates

Back on November 26th the Fed said that it would purchase $500 billion dollars of mortgage backed securities from Fannie Mae and Freddie Mac. Also, the Fed said they would buy $100 billion in direct debt issued by Fannie and Freddie. After this announcement, mortgage rates dropped from about 6.0% to 5.5% in a week. Mortgage applications more than doubled after the drop in the interest rate. Follow this LINK for more information.

Are the Mortgage Rates Dropping Further?

The Federal Reserve unveiled a proposal in late November or early December for the Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. This act would cause mortgage rates to drop. The treasury wants to bring mortgage rates down to around 4.5% as a way to reinvigorate the housing market. Bankrate has a good article by Dr. Don Taylor about the interest rate potentially dropping to 4.5%.

Why Didn’t I Refinance?

I am by no means an expert on mortgages and/or refinancing, but I am hoping the mortgage rates will move closer to the 4.5% level. Also, I don’t believe the full closing cost should be required to refinance my mortgage. This is the same company that gave me my original mortgage (it has since been sold to Wells Fargo) and my coworkers and parents have never paid closing costs on a mortgage refinancing.

Originally, I was happy with my mortgage lender. He was super helpful explaining everything to me and walking me through my first mortgage experience. Then came the month prior to closing. My lender did not frequently return my emails and phone calls regarding locking in my mortgage rate. His estimated closing costs were not very close and he seemed just disinterested in to talk with me.

Imagine my surprise when my lender calls ME and offers to refinance my mortgage. This tells me that they are really in need of some money. Here’s a paraphrase of his sales pitch (and it was exactly that):

I’m in a position to drop your mortgage rate a full percentage point to 5.25%. This is a savings of $200 a month. The catch is that you have to pay closing costs again, which are just under $1,600. I wish I could lower the closing costs, but with the current economy we have to reappraise the value of your property again. By the way, this offer needs to be agreed on 5 minutes ago.

I take this as a desperate sales pitch for a mortgage lender that really needs some extra cash. First of all, why does my property need to be reappraised? It was appraised just over two months ago and it was new construction. How could it have decreased significantly? You can’t tell me this appraisal will cost $1,600, so why can’t he waive the rest of the closing costs? Other mortgage lenders have been able to do so before.

Bottom Line

I am not comfortable dealing with a lender who is unwilling to provide me with ample time to do my research and consult with my friends and family. Instead of making me feel comfortable with a major decision, it seems like he’s trying to bully me into making a rushed and rash decision. I don’t know if the mortgage rates will drop any further, but I am fairly confident that they won’t be increasing in the near future. At the very least, it’s a very good feeling to know that I will be able to lower my interest rate and monthly payment.

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Finding Good Deals Using Slickdeals.net

December 17, 2008

Slickdeals Logo

The holidays are in full bloom and the economy is in the tank. Which means I’m scouring the internet and local sunday ads to find the best deals. I’ve recently posted about the different cash back rebate programs (Ebates, Mr. Rebates, BigCrumbs, Fat Wallet, Cashbaq and Live Search) and a directory that sorts the cash back programs based on the online retailer (ev’reward). The last piece of the puzzle for my holiday (and the rest of the year) shopping is slickdeals.

What is Slickdeals?

Slickdeals is a deal-sharing forum that is free and the information is supplied by the users. If there is a good deal to be had, you will find it at slickdeals. Users post deals and other users comment on and rate these deals as far as how good of a deal it is, the quality of the product and the quality of the retailer.

How do I use Slickdeals?

During the holidays I have been checking slickdeals multiple times per day, as new deals are constantly posted during the holiday season. With all of the slickdealers out there, the deals can expire or run out of stock quickly. Normally, I only check slickdeals once per day. At the very least, I always check the slickdeals on the front page. The front page has what is considered to be the very best deals for the day. Today, for example, there is a deal for 3 six foot HDMI cables for $9 shipped. The very same cables that Best Buy and Circuit City sell for up to $40 each.

In addition to the front page, I routinely click on the forums tab to read the “hot deals” forum. The hot deals forum is where users post what they consider hot deals. The best deals generally have the highest rating, which is donated by yellow fists with a thumbs up. You can also sort all of the deals according to category by clicking on the correct icon to the left of each deal or at the bottom of the page.

Recent Personal Examples

I’ve used slickdeals to do some of my holiday shopping, but my best deals have been on purchases for myself. I recently bought a ps3 for a final cost of $176.02! The starting cost for an 80GB ps3 was $399.99. I bought it from Dell online with a 5% coupon stacked on top of a 15% coupon. These coupons reduced the price to $322.99. Add in tax and free shipping and as far as Dell was concerned I paid $342.19. I initiated my purchase through Mr. Rebates for another 5% cash back. Finally, I applied for a Sony Visa credit card that offered a $150 credit on a $299 qualifying purchase. All of this information was gathered on slickdeals.

Unfortunately, the ps3 does not come with a game like the old fashioned console systems did. This did clear the way for a super deal at Toys R Us, which started this Sunday. Normally Rock Band 2 is $189.99. Toys R Us had a Rock Band 2 sale for $109.99 and a $25 gift card. After subtracting out the gift card, the total cost was 84.99.

In the end, the ps3 and Rock Band 2 should have cost me $589.99. With the help of slickdealers, I was able to score both for a combined cost of $261.01!

Conclusion

With the economy struggling, deals are just one way to reduce the effects. Keeping a watchful eye on slickdeals, I have been able to save a lot of money for holiday gifts, as well as purchases for my own amusement. Although slickdeals will make you more aware of some awesome deals, you have to stay strong and only make the purchases you were planning on making anyways. It can be very easy to spend too much on these great deals. Now that you’re ready to be fellow slickdealers, I’m going to go be a rockstar!

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Using Ev’reward To Optimize Cash Back

December 15, 2008

Evreward_logo

Recently I blogged about all of the cash back websites (Ebates, Mr. Rewards, BigCrumbs, Cashbaq, Fat Wallet and Live Search) for online shopping. Each of these different websites offers different cash back amounts from different online retailers. It can be quite a hassle to go to every website to maximize your cash back. Ev’reward is an online directory that tracks cash back percentages daily for all of the top cash back websites.

What is ev’reward?

The following comes directly from ev’reward:

At ev’reward, we scour the web daily for the best shopping rewards available.¬† Our directory includes over 14,000 rewards for over 3,000 online stores, available through more than 40 leading cash back, frequent traveler, savings reward and points programs.

From the home page I type in the name of the online retailer where I am planning to make a purchse into the search field and click on “Find Rewards”. For example, if I was making a purchase at Wal-Mart, the results from the search would provide me with up to date information about the current cash back rebate rates. Ev’reward even mentions which cash back programs have sign up bonuses or fees.

Other Benefits

Ev’reward also provides up to date information about available coupons, credit card points, college savings plan programs, and frequent flyer and hotel points programs. A box in the upper left corner of the results page offers suggestions as to other online retailers that¬† may sell the same product and provides the top cash back percentage for that store.

Now What?

After performing the search and deciding on the correct online retailer and cash back program, all you have to do is click on the “Go” button. This takes you directly to the cash back program’s website for that online retailer. All you have to do is sign in and select “shop now”.

Conclusion

It can get pretty overwhelming to try to sift through all of the cash back programs to maximize your cash back. Ev’reward makes it easy to find the best deal and be shopping in five minutes. If you’re an online shopper and like to receive free money this is a website that you will be visiting frequently.

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Saving Money At CVS And Walgreens

December 12, 2008

CVS

I continued my journey towards spending as little money out of pocket at CVS today. My CVS Extra Care Bucks (ECBs) from my previous CVS trip were expiring today. For the past month I’ve been looking for CVS deals to use my ECBs, but was unable to find a suitable deal until this month. As a quick reminder, CVS offers weekly and monthly deals that provide ECBs that print out on your receipt and can be used as cash for your next purchase.

This month CVS has the 12 fl. oz. bottle of Complete contact solution for $8.99 with 8.99 in ECBs. The contact solution is essentially free after ECBs. To make this an even better deal, a $2.00 off coupon can be printed HERE. After the $2.00 coupon and my $5.49 in ECBs, the contact solution cost me $1.58 out of pocket. I now have $8.99 in ECBs for future CVS purchases.

Total out of pocket: $5.43

Total ECBs: $8.99

Walgreens

I previously blogged about the Walgreens Rebate program, but today was my first visit to Walgreens to take advantage of the program. I have very little holiday shopping done, however, I do have a Christmas tree and one gift that can be wrapped and placed under the tree. I went to Walgreens to take advantage of the deal on Scotch GiftWrap tape. The 3 packs of tape were on sale for 2 for $2. Also, the December EasySaver Catalog has a $2.00 rebate. To make this deal even better, there was a manufacturer’s coupon on the back of each 3-pack for $1.00 of Scotch products, which made my purchase $0.00 out of pocket. After submitting my rebate and accepting my rebate as a store gift card (additional 10%), I will be paid $2.20 to take 6 rolls of tape off their hands.

Total out of pocket: $0.00

Rebate value on gift card: $2.20

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Earn Cash Back Through Live Search

December 11, 2008

The last cash back website that I wanted to review is Microsoft’s Live Search. I know there are other cash back options like coupon cactus and Jackpot Rewards, however, they either offer inferior cash back or charge a fee. Microsoft’s Live Search is very hit or miss, however, the potential for a large cash back sum makes it worth mentioning.

How it Works

Microsoft Live cash back works very similarly to the other cash back programs. To earn cash back for online purchases all you have to do is create an account with Microsoft Live Search (see below). After signing in all you have to do is initiate a search at Live.com for either the store you want to shop at or the product you want to buy. If the search results are accompanied with this symbol, cashback Icon, all of your purchases at that store qualify for Live cash back.

Details

After searching for a product or retailer and clicking on a link with the cash back symbol, you will earn cash back on all eligible purchases made during the store visit. A visit is defined as a web browsing session that may not exceed 24 hours. Different products may have different cash back percentage rates. There is a limit of $2,500 in cash back for one calendar year.

Getting Paid

To get paid you sign into your cashback account and go to your cashback summary page. If you have a minimum of $5.00 in your account you can request a payment via one of three methods: PayPal, paper check or a bank account. Live Search cashback purchases may be listed as pending in your account for up to 60 days after the purchase date. After this waiting period the money will be available to claim.

Sign Up

Follow this LINK to sign up for a MSN ID. Enter your email address, a password, and a password reset option. On the following screen you have to enter your birth date, gender, industry, occupation, state and zip code. Lastly, you have to do is agree to a few policies.

Now you have to sign up for open a Live Search account. Sign in at live.com using your MSN ID. Proceed to the cashback homepage (there is a LINK at the upper right hand corner). Click on the “Your cashback account” link. Select the “Sign In” button. Enter your name, address, phone number and agree to Microsoft’s service agreement. Now you’re completely signed up to use Microsoft’s live search to earn cash back.

Conclusion

Microsoft’s Live Search cash back is similar to the previously reviewed websites of Ebates, Mr. Rebates, Fat Wallet, Cashbaq and BigCrumbs, in that you receive cash back for online purchases. Live Search cashback differs in the number of online retailers offering cash back and the percentage of cash back. Live search cashback is available for ebay at percentages as high as 30% depending on the day. Also, I’ve seen cash back of 20% at Target and Circuit City, which is a pretty good deal. If you stumble upon a high percentage cash back from Live Search jump all over it, otherwise the other cash deals are usually better.

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