Refinancing our future

refinance-houseIn August 2016 I finally decided to take the plunge on refinancing. Interest rates have been low for quite a while now, and I’ve been on the fence about doing this for at least a year. After reading many articles about whether to refinance or not, it was decided that we should do it. The ultimate goal was to lower the payments and not take any equity out of the house. The lowering of payments was accomplished mostly by removing the private mortgage insurance we were paying on our FHA loan. When we originally bought the house in 2010, FHA was our only option. Our apartment rent was going up again and it was finally past the point at which we could mortgage a house instead and actually pay less on housing costs. The only problem was that we had not been saving enough to accumulate a very large down payment. With FHA, a 3.5% down payment of about $8k was enough to secure a mortgage in our price range. With that extremely low down payment came the burden of PMI though. Each month, $149 of my payment was not going towards principle, interest, or taxes. It was basically burning money, and I wanted to get rid of that specific burden as soon as I could. Recently, the housing market has been going gangbusters in our neighborhood, and with very little input by us, the value of our house has risen from the $230k we paid for it up to the mid $300k range. We’ve updated our kitchen and a bathroom, and installed new windows, but otherwise the house is the same as it was when we bought it 6 years ago. It’s amazing how real estate markets can change in relatively short periods of time.

I have been receiving junk mail about refinancing our house for years. Everyone wants a piece of the mortgage pie. I long ago decided that I would not do business with any company that either cold-called or cold-mailed me about refinancing. If I did not request their attention, and they gave it to me, they were put on a mental blacklist. I started with my current day-to-day bank and determined they were not very competitive, so dismissed them from the running. I tried the Lending Tree website to see if it could help us, but found that every mortgage company on there will not even talk to you via email unless they can make a phone call first. I’m guessing this has something to do with some kind of federal law mandating they make contact with a human to establish a business connection. My number one priority for this refinance was that I wanted as little voice communication as possible. I am not a fan of using voice communication for important things, as vital information is easily lost. When everything is done via email (or even postal mail), there is a clear and easily searchable paper trail. When not a single one of the Lending Tree providers “competing” for my business wanted to do business on my terms, I gave up on the site and moved on. I also attempted to check with our current mortgage lender to see if an FHA streamline or even a refinance was possible with them for a decent rate. Every time I called them, all I got was an automated message stating I was important and someone would be with me soon. After trying a few times, I gave up and contacted Quicken Loans. They were who we originally used to acquire financing for our house; though they sold us to our current mortgage servicing company within a month of closing the loan. It was surprisingly easy to do business with QL. I’d attribue that mostly to the fact that we had previous experience with them, and most of our information was already available to the agent. This time I wanted to make sure that they would not immediately pawn us off on a different loan servicing company. I was assured that it would not happen again, and that Quicken Loans services their own mortgages now. With my mind set at ease, I chose to proceed with them to see what could be done for me. After some back and forth, I feel like we were getting fairly agreeable terms. We ended up paying some partial point to lower the interest rate, which I feel like maybe I got shafted a little on that part, but otherwise the terms were good enough. Our PMI would be dropped, our loan term would be lowered from the current 24 years remaining to a 20 year loan, and best of all, our monthly payment would be lowered, which was my ultimate goal. Now, I didn’t want to lower the payment to pay less. I did it so that more of my payment each month was going towards principle, effectively cutting our loan life even shorter.

With all mortgages, there is usually a crossover, where you go from paying more towards interest than principle to the opposite, and more of your monthly payment is going towards principle. With our original mortgage, that crossover was scheduled to happen sometime in the early 2020s. With the refinanced mortgage, we’ve already hit that point. Well, technically that point never even happened. We’re starting out paying about $80 more towards principle than interest. That means, compared to the original mortgage, we will be saving something like $40k in interest over the life of the loan! Now, that won’t really be exact, since we plan on doing a few things differently than what is expected. First, I plan on making larger than normal payments. With the original mortgage, I was paying about $60 more per month than the scheduled amount. It’s not a lot towards principle, but even that was knocking months off the final payment schedule. With the new mortgage, I’m still planning on paying the same amount monthly as before, but since we’ve dropped the PMI, I’ll actually be paying at least $100 more per month on the principle than I was before, without changing the payment I’ve been making for years. That means I’ll be able to knock off 34 payments, or just under 3 years from the planned amortization, and save just under $11k in additional interest. To me, that makes a ton of sense, and it was worth the refinance. Additionally, once our other debt is paid off, I will more than likely start paying even more towards the principle. I’ve calculated that if I can start putting my (inflated) truck payments towards the mortgage each month, we will have significantly more equity in the house when we go to sell it. This will fully depend on where we think the market is going, and if it makes more sense to invest those funds in some kind of index, or just pay down the mortgage quicker. The final thing we’re going to do differently is that we’re not expecting to actually live in our current home for 20 years. The ultimate goal is to move to Utah (hence this site 🙂 ) much earlier than that. Our current schedule is to be out of California by the middle of 2020, 16 years before the mortgage is supposed to be fully paid off. Since we plan on selling the house when we move, as long as the housing market doesn’t crash and burn, we should be good to pay off the mortgage in full, saving even more interest.

The overall process for doing this refinance was ridiculously easy– much easier than the original purchase of the house. The team at QL was very helpful, efficient, and understood that I didn’t want to or have the time to sit and talk on the phone. The few phone calls that were required were scheduled after my normal work hours. That part was extremely helpful since we were doing this during the month of September and I work in the IT department at a college, so I was busier than usual. After providing initial documents via the secure website, the loan team did all of the leg work. They scheduled an appraisal by a certified professional, which we paid for up front. The guy showed up about an hour early for our appointment, which was fine with me since I was just puttering around the yard anyway. He measured a bunch of dimensions around the house, walked through quickly and noted things like windows and bathrooms, and was done in less than half an hour. It was surprisingly quick, considering we were dreading having someone come in and ask all sorts of questions about the house. He said maybe 10 words to us the entire time he was here, most of which was “you guys are in the picture, please move.” Eventually QL had me and Alex log in and electronically sign some documents to move the process along. After we had signed everything, we basically just waited while the loan was approved. It was approved after a couple of days, and they called and scheduled a closing date a week later. They sent out a mobile notary, so we didn’t even have to go anywhere. The guy showed up at our front door, and we signed the necessary paperwork right on our kitchen table. A couple of days later, everything was finalized, and I was able to view the full loan information on the QL site. About a week after the closing took place at our house, our cashback from the closing (pretty much the earnest money we deposited for the appraisal) was in the mailbox. About a month after our closing, I finally received a check in the mail from our original mortgage company to close out the escrow account. I took that check and directly applied the entire amount towards the principal on the new mortgage. With that, we can now close the books on our original mortgage for good.

Now we just get to sit back and reap the rewards of a lower interest rate and cruise our way to Utah.

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