Think of the Savings: Our Refinance (Part 2)

Do you ever have those days when you think it's another day? Last week I thought it was Thursday or Friday on a Tuesday. Throw in a bit of Daylight Savings Time and it's more than fitting to share my Friday's Fancies post on a Sunday.

This week's Friday's Sunday's Fancies is a fun one because I'm finally sharing how much we saved by refinancing :)

By lowering our interest rate from 4.875% to 4%, our required monthly payment is $142 less! With fees of $1,850, that means the refi will pay for itself in 13 months. We have no plans to move in the next 13 months, so the refi made sense/cents :)

[A quick word on fees vs. closing costs. Closing costs will actually be higher than the refinancing fees. Fees include items like the appraisal, recording fee, application fee, and title insurance. Closing costs include those same items as well as property tax, prepaid interest, and principal payments, as applicable.]

More importantly, we're going to save a truckload of dough in the long run! Even if we only made the required monthly payments, our savings are about $51,000!

That's pretty impressive, but we were already paying $100 more towards principal each month. With the 4.875% rate, that resulted in savings of about $34,000. So for a more apples to apples comparison, I calculated how much would be saved by paying that same amount each month. In essence, $236 in additional principal payments with the 4% rate.

Are you ready? This is big. Huge!

Almost $63,000!!!

Or $97,000 in savings when you compare the 4.875% minimum payment to the 4% minimum payment plus $236!

My jaw dropped....

So, what are we going to do with all this extra money? Something really responsible like saving for retirement, future kiddos' educations, donating to our favorite charities, and buying a new fridge when our 1980's model finally dies.

But wait a second? Isn't Friday's Fancies about having a little fun and dreaming big? Yes. So what would I (not John) like to do with the savings if those grown up financial goals were already covered?

Travel! I have the travel bug and haven't been outside of the States since our honeymoon. I could go for a trip to Europe or even the West Coast right about now.

Pastry school! I would love to take off work and perfect my buttercream frosting skills.

Quincy iPad case



Buy an iPad and a corresponding Jess LC iPad case! I'm not a very techy person, so it doesn't have to be the iPad 3.

How about you? What are your big dreams at the moment?

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Think of the Savings: Our Refinance (Part 1)

Happy Leap Day! And it's time to start wrapping up our refinancing story! Turns out I have a lot to say about refinancing, so our experience is going to be a multi-part series.

And before I leap jump into everything, I have to thank John's sister and her husband for talking about refinancing their mortgage shortly before Christmas. If it hadn't come up in conversation, we probably would have put off refinancing for a while. They purchased their house after us (we've had our house for less than a year) so it really made us think hard about why we were delaying refinancing.

I think we were intimidated by the process. But looking back, it was extremely fast and easy! John and I quickly cruched the numbers over Christmas and decided to talk to the bank once we were back in town. Our original mortgage was sold to Chase, so we asked them about refinancing on December 30, 2011. We closed on our refinance on February 10, 2012. That's less than 1.5 months!

So back to the story. You know how they say everything happens for a reason? I believe it. When we called Chase to schedule a meeting with a loan officer, they asked us to bring a few documents (W-2's, tax returns, bank statements, etc.), but I couldn't find one set of W-2's. I knew we had to provide those items for our original mortgage, so I called Wintrust Mortgage, the bank where we secured our original loan.

I explained to Ryan Mecum (our amazing loan officer) that we were talking to Chase about refinancing and needed copies of W-2's from our file. He had someone from his team pull the documents and said to call back after our meeting with Chase. He told us that Wintrust offers loans at 0.125% less than Chase with the same fees (~$1,850). Had I found the W-2's, we may have waited longer to call Wintrust.

Chase quoted us 4.125% for a 30 year mortgage. And true to Ryan's word, we locked in at 4% with Wintrust. Either way, Lesson #1 of mortgages and refinancing: Get multiple rate and fee quotes. [Side note: We could have locked in at 3.875% had we escrowed our property taxes, but we waived escrow. I'll speak more about our decision in a future post.]

Going with Wintrust had other advantages. Since we had worked with Ryan a year ago, we already had a relationship and knew how their process worked. We knew it was going to be smooth and professional. Wintrust also had all of our financial information from the original loan, so all we had to do was send over updated bank statements and pay stubs for the end of 2011 and early 2012.

By the way, I'm not compensated to say this, but Wintrust Morgage finances mortgage loans in all 50 states. So if you're looking for excellent service, I would give Ryan a call. Ryan might be in Chicago, but he also gets cool points for owning a restaurant in Nashville :)

Next up, cruching the numbers! We were blown away by how much we would save by refinancing!
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To Refi or not to Refi?

That is the question...

Mortgage rates are at historic lows and there's no sign that they're going up any time soon. Therefore, refinancing your current mortgage to the lower rates or changing the loan term (number of years you have to pay back the loan) can be a great way for you to save money!

When you refinance your mortgage, you (really the bank) pay off the original mortgage and replace it with a new one. The term of the loan and interest rate may change, but the property securing the mortgage (your house) is still the same. Which means refinancing should be easier than getting approved for the original loan.

Back to getting the "new" loan. If you currently have a 30 year loan, are 5 years into making payment, and want to refinance to a new 30 year loan, your loan term is back to 30 years. Which is important to note because the first 10 years of a loan are primarily interest payments. When you refinance at a lower rate, a greater proportion of the monthly payments are principal, but a good chunk still goes to interest.

You'll also want to compare the monthly payments of a 15, 20, and 30 year loan. You'll pay less interest with the 15 year, but the required monthly payment will be higher. I recommend the 30 year because you have the flexibility of making additional principal payments or only make the lower required monthly payment if you have other large expenses that month, like a medical emergency or buying a car.



From Etsy seller typogy

With that in mind, here are a few considerations if you're currently deciding whether to refinance or not:

Refinancing involves a lot of number crunching.
Fortunately, there are all sorts of calculators to help you out! Bankrate has a goldmine of online calculators. If you're looking to refinance, it's extremely important to know whether you'll recoup the closing costs or not. For example, if it costs $3,000 in closing costs and the lower interest rate will save you $150 per month, you'll need to stay in your house for 20 months to benefit from the savings. This calculator helps you determine the breakeven point and if you should refinance.

Are you creditworthy?
Now, you might have the best intentions in refinancing, but are you actually able to do it? Just like the initial loan approval process, the bank will be checking your credit report to determine whether you are still creditworthy. Therefore, it's a good idea to check your credit report a few months before refinancing and cleaning up any discrepancies. Also, avoid doing anything drastic while preparing for the refinance like taking out a new loan for a car. Banks generally require that your debt to income ratio fall below 36%.

The bank will also want to see that you have steady employment and can afford the monthly payments. Some mortgage brokers say they want to see 2 years of continuous employment history, which can be a little tough with these economic times.

How's your home value?
Since a mortgage is an investment to the bank (they're be getting your interest payments), they want to see that they're making a worthwhile investment. So has the value of your house increased, remained steady, or decreased? The official way to find out is getting an appraisal for the house.

Before you go through the whole refinance and pay for the appraisal, it's a good idea to get a general understanding of housing prices in your area. Check Zillow or talk with your real estate agent to compare current market values. If your house's value is steady, then go for it! However, if your property value declined significantly, you might not be able to refinance. Or you'll have to pay down a portion of the principal balance of the original mortgage before getting the "new" loan.

While we're on the topic of appraisals, it's important that the appraisal reflects significant improvements made to your house. So start accumulating your paperwork and be sure the appraiser knows about the new addition, bathroom, or kitchen.

Can you afford it?
Do you have the available cash to pay for the closing costs? Average closing costs for a $200,000 refinance are $3,741, but amounts vary greatly by region. Closing costs are also based on the interest rate. If you "buy down" the interest rate, you'll have higher closing costs and vice versa. You can roll closing costs into the mortgage, but then you'll have to pay interest on those costs over the life of the mortgage.

As mentioned above, if your property value decreased you'll need the funds to pay a portion of the mortgage principal. Finally, depending on the timing of your property tax bill, you may have to pay taxes before closing.

From Etsy seller katiez84

Phew! I hope this helps you determine whether you should refinance or not! Up next is how our actual refinance shaked out. I'll be running the numbers and sharing other things we learned.

Do you have any other questions you'd like me to answer about refinancing? Anybody currently refinancing?

PS - My mortgage primer can be found over at I am Just Lu.
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Refi Update!

Remember how I said we're refinancing our mortgage? And that I would share the juicy details?

The time has arrived! We just scheduled our closing!!!!! 4% refi, baby!

In addition to writing about the refi in the coming weeks, I'm also thinking about writing a quick series covering blogging and taxes, since we all know it's tax season. Do you have any questions in particular?

PS - I'm happy to report that I hit chambray outfit #3. I layered it underneath a dress and wore it to work. Since I hit outfit #3 in less than a week, this purchase is fiscally chic approved!
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