28 June 2009 -  Jacksonville, Florida USA                                        

 

What a Perfect Timing

I can hardly believe how timely we are in re-financing our home mortgage loan. I mean at this point in time, where else can you find a 30-year fixed mortgage with an interest rate lower than 4.25%? It won’t get any better than this I don’t think and I know it didn't go down below 4% since last year. We really just got lucky! You see, one of the very common situations these days as the widespread of house foreclosures rates continue to rise and the housing values continue to drop is that some homeowners who are up-to-date in their mortgage payments are unable to refinance for lower interest rate because they have lost the equity in their homes--- that means the price of their house/property have dropped tremendously and they now owe more, meaning their mortgage loan is more than the current appraised value of their homes.

Read this:  Florida had the third-highest state foreclosure rate in America (Nevada continued to post the highest overall foreclosure rate and California comes second. Other states with foreclosure rates ranking among the nation’s 10 highest are Arizona, Michigan, Ohio, Illinois, Georgia, Texas and Virginia.

But anyway, based on my own personal experience, the whole process of re-financing wasn’t nearly as straightforward as opposed to buying/selling a house with the help of real estate agent. With re-financing, you have to do everything yourself and complying the gazillions of required documents are undeniably very time consuming and exhausting. What you really need here is time and patience, patience and did I say patience? I tell you, I have only breathed a sigh of relief after DH and I finally closed the loan last Wednesday, June 17, 2009!

Closing date: June 17, 2009 at 4:30PM

When I called DH in his cell phone at 3:30 PM that day, he was trapped in the middle of the traffic. I was in panic because I know that if we can't close the loan on this very day, we’re basically screwed because per commitment agreement, if the loan does not close on or before the expiration date of the contract which is 6/17/09, the loan application will be cancelled.  On the loan application, we opted to the lender’s commitment agreement to:

Lock in Loan Terms for 60 days – By choosing this option your loan will not close at an interest rate and/or discount points lower than *4.25%, even if market interest rates and/or discount points decline.

*The final interest rate on your loan will be based upon financial market conditions, mortgage loan product, specific requirements of your loan transaction such as the loan-to-value ratio and your credit profile up to the time of closing. If credit score, employment, income, assets, property valuation, property condition and title conditions meet lending guidelines, you will be approved for a mortgage loan with an interest rate of 4.250%.

If your application is cancelled or withdrawn for any reason, you will not be able to reapply for financing on the same property for 30 calendar days from the date of cancellation and you will forfeit your Good Faith Fee of $250.00.

Your interest rate and discount points shall be determined by the Price Commitment Option you elected above, providing settlement occurs by the expiration of this Price Commitment Agreement, 06/17/2009. If the loan does not close on or before the expiration date, your loan will be cancelled.

Well, we left the house at 4:15PM.  As we were driving down the road, I peeked on the car’s odometer and saw DH was clocking in 40mph on the construction highway with 30mph speed limit. (I jokingly told him, "Darling, if I ever see a cop behind us with flashing lights I’ll strangle you before the cop gets to write you a ticket." He reasoned out, “My Love, you’ll be lucky and might get away with murder if the cop is a woman (that’s because woman knows that men don’t really listen right?) I reckoned, "I would think I can get away with it if the cop is a DOM". LOL

On our way to the lawyer’s office, I was ranting and raving by telling DH a horrible story of infidelity and how devastated my colleague was when she found out that her husband of 7 years has been cheating on her and the worst part of it is, the mistress is no other than her very best friend for 31 years! I will never understood how somebody can betray her very own one and only best friend since they were 10 years old! And what’s up with these philandering cases that dominated the news lately? Do these people have conscience, decency and respect to their spouse and children let alone their very own best friend since childhood? My take on this issue is, and I told DH this, if you ever fall head-over-heel to another woman and that you are so miserable with me, then be a real man---be upfront about it by ending this marriage before jumping into a new relationship.

Nonetheless, we finally stepped into the lawyer’s office at 4:40PM and I was glad the lady in the front desk was nice enough to assure us that we still have time.  The whole closing process which took us exactly 60 days to process and close the loan went without a hitch in less than 30 minutes at the closing title company.

Here are some tips to save money on the closing cost expenses:

The current WDO report doesn’t cost $150 or more and it can be done within the next 24 hours---that is if the company you are dealing with has an excellent customer service. I would think that it would be so much easy to deal with our pest control company because we’ve been bonded with them for nearly 3 years now; spent a considerable amount for the Termite Bond and Pest Control Service and we’ve been continuously paying them $44/month for the treatment yet they couldn’t provide me a copy of the current WDO report the soonest possible time with less amount of fees.

But anyway, the bank found out that we have an outdated WDO report (the one that was done when we first bought the house in 2004) on file four days before our closing date. I wasn’t home when the bank called at 8PM so it was DH’s first time to deal with the issue. Basically, the bank told him we have to provide them a copy of the most recent WDO report the soonest possible time otherwise we may not be able to close the loan on schedule.

Imagine how ticked off I was when I got home from my part-time job at 10PM to hear such a thing. DH was pissed off too and said to me that he almost bash the woman and told her to kiss his a**. This is why DH is glad that I am very proactive and on top of doing everything because he intensely dislikes dealing with the bureaucracy.

So that night, I stayed late searching about WDO report and found Turner Pest Control website. I shoot them this email at 11:57PM, and got a reply at 7:59 in the morning.

--------------------------------------------------------------------------------
From: website@turnerpest.com [mailto:website@turnerpest.com]
Sent: Wednesday, June 10, 2009 11:58 PM
Subject: New Website Contact Form Submission: 6/10/2009 11:57:40 PM
Website Contact Form Submission

Name: Rhebs
Email: tony_rhebs@yahoo.com
Zip Code: XXXXX

Comments/Questions:
How much do you charge to do the current WDO report and how soon can it be done?

_____________________ REPLY ___________________________

From: Jennifer Higginbotham JHigginbotham@turnerpest.com
Subject: FW: New Website Contact Form Submission: 6/10/2009 11:57:40 PM
To: tony_rhebs@yahoo.com
Date: Thursday, June 11, 2009, 7:59 AM

Dear Ms. Rhebs,

Our WDO reports are $75. We can typically schedule pretty quickly depending on your availability. Please contact our offices at 904-355-5300 to set one up.

Sincerely,
Turner Pest Control

--------------------------------------------------------------------------------

Get this, at 8:00 in the morning, I called Turner Pest Control and in less than 5 minutes I was able to make an appointment with them and have their technician come out to our house within the next 2.5 hrs. And best of thing of all is, the WDO report was ready to be faxed to the lender the very next morning as early as 9:30 AM. Talk about FAST and EXCELLENT CUSTOMER SERVICE!!!

I mean, if you are in the business industry that directly deals with people then you should know how important the value of excellent customer service is. Fast and Excellent customer service are what sustain your business to thrive or if you are an employee, you get to keep your job hence it pays your bills. Poor customer service is certainly one of the major causes some businesses have failed miserably; consequently, you as an employee lose your job. Simple as that!

Long story short, I am now contemplating to switch our Termite bond to Turner Pest Control but then again I am not thrilled to throw away another $250 extra right off the butt and another $5 more every month to transfer for the new service agreement. Wish I found out about Turner Pest Control earlier. So homeowners out there, if you haven’t found a pest control company for your home, I highly, highly endorsed Turner Pest Control for your termite bond, lawn, and other pest control services in your area!

Another Money-saving tip:

We only found this out during the closing. We were told by the closing agent that since we faxed them a copy of the Title Policy of the Property prior to the closing, they went ahead and reimbursed us part of the lawyer’s closing a cost fee which was amounted to $400. Sweet!  We were able to save $475.00 from our closing cost expenses.

So folks, all in all, after re-financing including the closing cost expenses, we will still be saving $25,600 in interest and if we continue to pay the same amount we used to pay in our previous 5.875% mortgage loan, we will be able to pay off the whole amount in 19 years time. What a sweet deal! Plus now I feel so safe knowing that our current mortgage loan is going to stay forever with the Navy Federal Credit Union.

While banking and choosing a lender is a personal preference, I definitely suggest you should consider looking into a very refutable Credit Union just to see what services and opportunities they can offer you rather than go to a worldwide banks/lenders like Citibank, Washington Mutual, Wachovia, Bank of America, ABN-AMRO, Lending Tree, Wells Fargo, CitiGroup and etc.

I am just so glad that we have been banking with the world’s largest credit union---Navy Federal Credit Union that is. But NFCU only serves the men and women of the U.S. Army, Navy, Marines, Air Force, the civilian employees of the Department of Defense and their families.

Since 1933, Navy Federal Credit Union has grown from seven members to over 3 million plus members. The NFCU has this thing, “You can leave the military, move, retire, and get married and have children — and never have to leave Navy Federal Credit Union because once a member, always a member.”

I’ll tell you the difference between a credit union and a bank including the way they operate and do business and who they really work for.

First off, the bank is usually owned by group of hungry/greedy investors hence the bank operates to make these investors rich. That means only investors are reaping the profits of the institution whereas, in Credit Union, members are the owners –the members control their credit unions and each member is entitled to one vote. Credit unions are nonprofit—that means surplus funds are being returned to the members as dividends. Also Credit Union is NOT for Profit, NOT for Charity, but for service of its own members. Credit unions are exempt from paying most state and federal taxes and are therefore usually able to offer a little higher savings account rates and lower rates on loans.

Most credit union has no stockholders—no outside third parties to exert influence. They operate under democratic control. Just make sure you verify that they are FDIC insured (just so you know all federal credit unions are FDIC insured); how long they have existed and how stable they are in terms of assets, reserves and liabilities and the number of members.

The only downside in banking with credit union is they are relatively inconvenient compared to banks, as they typically have less ATMs and branches and usually lack variety in investment products and services. But because credit unions tend to be smaller and cater to a select group of people, the service and interactions are more personalized between the staff and the members. Banks tend to have larger variety of products and services that may allow you to diversify your money and banking needs.

Overall, choosing a bank or credit union is all about what's suitable for your own personal needs and not necessarily about where everybody keeps their money.

This is the end of my re-financing rants.

    06 June 2009 -  Jacksonville, Florida USA                                        

 

Part 2 - When Is Refinancing Make Sense To You?

Mortgage Interest Rates Comparison

When I first received the approved documents from the bank re our mortgage re-financing loan, I was really confused why one of the documents, the ‘Bank Mortgage Loan Approval Letter’ was showing an interest rate of 4.250% but the other attached document, which is the “Federal Truth-in-Lending Disclosures” was showing an Annual Percentage Rate (APR) 4.812e%

So I called the bank and ask the difference between the two rates. The mortgage specialist answered, “Ma'am, I know it’s confusing and I don’t want you to get confused even more so I’ll just explain this APR thing in a very simple lingo. By law, the Federal Government mandates every lender to disclose the APR because loans are often offered on different terms. But no worries…you guys got approved for 4.250% interest rate which as you can see was stated in the Bank Mortgage Loan Approval document.”

I was like, HUH? So why on earth do you have to disclose the APR rate if it doesn’t affect anything? She reiterated, “Like I just said, it is very confusing and I don’t want to confuse you even more. Believe me when I say that the 4.250% is really the actual rate we used to determine your monthly mortgage payment, the total interest to be paid and the total-pay-out of your loan.”

To tell you the truth, I was even more in doubt but I let her go anyway because she wasn’t rude or anything. In fact, she really sounded nice to me although I got the impression that she probably doesn’t really want to waste more time explaining to me in details because I may not understand the language anyway just because I speak with an accent? I don’t know... hate to be cynical but I can’t help it sometimes.

Needless to say, I did my work by spending all my free time looking for answers and finally figured out the difference between the two: Nominal Interest Rate vs. Annual Percentage Rate

She was right in saying that the nominal rate which is the 4.250% is really the actual rate being used to determine the monthly mortgage payment, the total interest to be paid and the total-pay-out of the loan.

The  Annual Percentage Rate (APR) takes into account when we, the borrower, roll back the closing costs (origination fee and discount points and etc.) into the new loan amount. So in essence, APR is definitely the rate we should use to compare loan’s interest rates side by side, you know like you are comparing apples to apples or which loan gives you a better deal.

For example: Assuming that your current mortgage loan was previously for $200,000 at 5.875% on a 30-year Fixed Conventional Term.

This means your mortgage monthly payment without escrow is $1,183 and presuming you have not missed any payment since March 1, 2005. No extra payment made. If I do the math here, as of June 1, 2009 you have already paid a total of $61,520 on Principal and Interest and by 02/01/2035 the loan is going to be paid-off completely.

Hence, as of June 1, 2009, your pay off loan balance is $187,958.

Now you are trying to refinance this current mortgage loan balance of $187,958 for lower interest rate but you get confused with the different quotes from the lenders.

Let’s take a look at these two different rates with different closing costs variables:

Option A - 30-Year VA Fixed Mortgage Loan
Interest Rate     VA Funding Fee      Points           Origination Fee                 APR    
    4.250%               3.30%              2.50%                1.00%                         4.812%

Option B - 30-Yr Conventional Fixed Mortgage Loan
Interest Rate     VA Funding Fee      Points           Origination Fee                APR    
    4.750%                 0.0%               1.750%                1.00%                      4.885%

Note: Veterans Administration (VA) Loan Mortgages are government loans guaranteed by the Department of Veterans Affairs  for eligible Military Veterans only. 

Here’s a question to consider with regards to APR: Is it beneficial for you to pay more closing cost upfront to get a lower nominal interest rate or pay less closing cost but on a higher nominal interest rate?

Which do you think is a better deal? First, ask yourself this questions: How much will it cost me to refinance?  Do I have the money on hand to shell out for the closing cost expenses or just roll the closing cost expenses to the new loan amount?

Let's crunch the numbers and compare the two: Let's say you are rolling over the closing cost to the new loan amount.

If you refinance using option A, your *closing cost is more or less about $18,990 hence the new loan amount including the closing cost is going to be $205,739 and your monthly payment is $1,012 whereas if you refinance using the option B, your *closing cost is more or less about $10,448 hence your new loan amount is only going to be $198,127 but your monthly payment is $1,034.

*Closing cost includes these Lender, Government and Settlement Fees:
     Origination Fee
     Discount Points
     VA Funding Fee
     Appraisal Fee
     Credit Report
     Flood Determination Fee
     Settlement Fee
     Abs/Title Search
     Title Insurance
     Recording - Deed
     Tax Stamp - Deed
     Survey Fee
     Pest Inspect Fee
     Prepaid Interest
     Hazard Insurance Escrow
     County Property tax Escrow

Remember, in your current loan, your mortgage monthly payment is $1,183.

Therefore, if you take option A, your month savings which can be applied to extra payment per month is $170.97 whereas if you take option B, the monthly saving is only $149.56

In essence, if you decide not to refinance and just stay in your current mortgage, your $200,000 house would cost you a total of $425,904 at the end of the loan (Principal and Interest)

However, if you re-finance using option A, including the amount you’ve paid since March 1, 2005, you’ll end up spending a total of $381,719 whereas option B, costs you a total of $387,152.

This means, with VA loan at 4.250%, you’ll be saving yourself about $44,184 while the Conventional loan at 4.750% saved you $38,751.

Between option A and option B, the VA loan at 4.250% is better than Conventional loan at 4.750% because not only you'll be saving yourself an amount equal to $5,433 at the end of the term but you'll also be paying off your home 5 months in advance.

That’s if you plan to remain in your home for the term of the loan but that's in the long run.  How about consider the short term? The thing to really consider here is to  ask yourself this question: How long do I plan to stay in this house?  What if I decide to move somewhere and sell my house in say 5 years later? 

Do the math again and compare how much you are going to save/loss in a short or long run.

Remember:
With VA loan at 4.250% you need to keep your house for at least 9.3 years   just to recoup the re-financing closing cost expenses.
Formula: ($18,990 divided by 170.97 = 111 months) or (111 / 12 = 9.3 years)

With Conventional loan at 4.750% you need to keep your house for at least 5.8 years  just to recoup the re-financing closing cost expenses.
Formula: ($10,448 divided by 149.56 = 69.85 months) or (69.85 / 12 = 5.8 years)

Now, take a look at the total total savings if you decide to pay $100 extra every month to your mortgage payment.

                                  TOTAL PAYMENTS AT THE END OF YOUR LOAN
                                                                             With $100 Extra         
                                  Without  Extra Payment    Payment Per Month                  Savings

Current Loan at 5.875%      $ 425,904                     $ 393,579                           $32,325                
Last Payment Date                  02/01/2035                     10/01/2030                             5+ yrs

Refinanced VA at 4.250%      $ 381,719                     $ 366,047                          $15,672    
Last Payment Date                   02/01/2032                    05/01/2029                              3+ yrs

Refinanced CON at 4.750%   $ 387,152                     $ 368,365                          $18,787
 Last Payment Date                  07/01/2032                     07/01/2029                              3+ yrs

Bottom line is, the VA loan @4.250% is the way to go even if your new loan amount was $7,612 more than the Conventional loan and you are not only saving $2,318 in total payment at the end of the term but you also pay-off your loan seven months in advance. The only downside with VA loan is if you decide to sell the house in the next 5 yrs, then you are screwed.

Here you can download the the Microsoft Excel files with series of worksheets I painstakingly created modeled from the Vertex42 Financial calculator to compute and compare different interest rates and which one gives you a better deal: Refinance Calculator 1 and Refinance Calculator 2 with monthly Extra Payment of $100.

You can easily find out the APR rate here at Bankrate calculator but me being the visual person; I don’t rely on APR rate alone. I want to see the actual figures to see the difference so I always crunch numbers before I decide which rate is beneficial for me!!!

Hope you do the same too so you won't get ripped off by some of these predatory lenders!

 

    19 May 2009 -  Jacksonville, Florida USA                                        

 

Part 1 - When Is Refinancing Make Sense To You?

With the interest rates for 30-year fixed mortgages floating around to a 4 to 5 % level, the lowest has ever been since I was born? It may make sense to consider refinancing your 6+% current mortgage interest rate let alone if you have an adjustable rate mortgage (ARM).

First and foremost, the so called “expert” people in the lending industry told me the old rule of thumb is, “refinancing only makes sense if you can lower your interest rate by 2% or more”. Well, I believe that but the word “only” didn’t impede me from digging into refinancing issue a little deeper especially after all we have been through with our current mortgage lender.

Ok, I am definitely not an expert in any field of study more so on how people do business here in America but you see I am no longer the type of person who just sit back and submit myself to other people’s proficiency or abide by their own way of dealing business…never again.     In this day and age, you’ve got to learn how to play the game otherwise you’re always going to end up a loser.

Imagine in just a span of 4 years, our house mortgage was sold not just to two but three different mortgage lenders and during last year’s transition period, the extra payments we made every month which were supposed to go to the principal were re-directed to our escrow account and then at the end of the year, the lender turned around and refunded us the money which was equivalent to one month worth of extra mortgage payment.

An escrow is the account where the mortgage lender held certain amount of fund they collected from the borrowers to pay for their property tax and house hazard insurance premium at the end of every year. 

Can you believe it? All these happened during the transition period and I wasn’t on top of it because I know the $108 dollars extra we pay every month always go to the Principal so I just assumed they’ll continue doing the same thing. I only found out what they did when we received the check in the mail last week of January and when I spoke to Customer Service Representative, I was told that money was in fact a surplus from our escrow account. I was so furious, yelled and cussed the guy so badly!! Boy, are these lenders/bankers smart or just in the business to rip people off?! First, they tank the economy but then the government bailed them out at 0% interest!! And the worst thing is, the US Treasury and the Fed continuously rig the game to guarantee that these companies are going to survive in this financial meltdown. I don’t know about you but I am beginning to doubt Mr. O’s slogan “yes we can; change we can believe in”. I guess I am just tired of senseless wrangling in the government and the politicians’ promises that are often broken!! Yet, I am still hopeful and I pray that the US and the rest of the world will find its’ way out of this global mess even just a bit at a time, but always onward. Well, I better go back to the topic of refinancing before I get so political and hurt some members of my family and friends feelings.

Anyway, while refinancing at a lower rate reduces your monthly mortgage payment but you also have to first consider the closing costs which can be a very substantial amount for you to recover later on. Here's a classic example:

	NEW Refinance	CURRENT Mortgage	DIFFERENCE IN MONTHLY PAYMENT
Loan Amount	$   198,927	$     200,000
Annual Interest Rate	4.250%	5.875%
Term Length (in Years)	30	30
Monthly Payment without Escrow	$978.60	$1,183.08	$204.48

To compute the monthly payment, type this formula on MS Excel
                    =PMT(4.25% /12, 30*12,-198927)
                    =PMT(5.875% /12, 30*12,-200000)

So let’s just say, based on the data given, you’ll be saving $204.48 a month with a new refinanced loan but the total closing costs was $18,527.

This means that you need to keep/stay in your house for at least 90.60 months or 7.6 years just to break even the re-financing expenses.
Formula: ($18,527 divided by 204.48 = 90.60 months) or (90.60 / 12 = 7.6 years)

But there’s more to that than just to recoup your closing cost expenses of course. I’ll give you in the next post, the whole picture of the refinancing numbers complete with series of worksheets from Vertex42 - The guide to Excel in everything that I revised to make it simpler and easier for common people to understand.

Also, it is very, very important to be aware of the “pre-payment penalties” stipulated in your copy of the 'Federal Truth-in-Lending Disclosures' document which was signed by all parties, completed at loan closing/settlement when you first bough your house. Take a look at it before you go further into considering a refinancing.

A prepayment penalty is a provision in your mortgage loan contract with the lender that states that in the event you entirely pay off your loan early, you will have to pay a penalty. This penalty is usually enforced if the loan is being refinanced and not when you sell your house.

According to American Finance, the most common prepayment penalty is six months worth of interest on 80% of the principal balance or it can be 3% of the principal balance. This means that the prepayment penalty on a loan with an outstanding principal balance of $180,000 and an interest rate of 5.875% would be approximately $4,200 and or 3% of 180,000 is $5,000 and this would bring your closing cost to a whopping $20,000!!

Bottom line is Shop around, compare and DO the MATH first. Do not just jump into refinancing just because you see a very attractive low-interest rate mortgage loan. You have to watch out for the catch---the so called hidden fees?!

And a good place to start your research is at www.bankrate.com  but don’t forget to also check out your local credit unions for comparison as well.  I will talk about this topic when I get a chance.

Until next time....