PT Money » Real Estate

Should You Refinance Your Mortgage?

PT — Thu, 04 Mar 2010 18:39:30 +0000

I’m currently in the process of reviewing our home loan for a possible refinance. I know a ton of you are out there saying, “should I refinance my mortgage?” Rates are much lower than when we purchased our home, and we have the opportunity to refinance through our current lender without paying closing costs.

As I’m making my decision, I’m paying attention to several factors. All should be taken into consideration when looking to refinance your home mortgage.

Factors to Consider When Thinking of Refinancing Your Home Mortgage

Here are the factors along with some questions you should be asking about each one.

Interest Rates – What is your current interest rate? What would it be if you refinanced? Is there a big enough difference between the two? Are rate’s expected to go up in the future? A rate change of just 1% can make a huge difference in the amount of your payment, and more importantly, the amount of interest you’ll pay for the life of the loan.

Loan Type – Are you moving from an adjustable rate mortgage (ARM) to a fixed rate loan? Are you considering moving the loan terms from 30 years to 20 or 15?

Closing Costs – How much will it cost you to refinance? Do you have this amount available in your short term savings? How long will it take you to recoup these costs? Will you be in the home that long? Some closing costs can be negotiated. Sometimes you can include the closing costs in the new loan balance, or pay for them by using a higher interest rate.

Your Credit Rating – Has your credit rating recently gone up? You might qualify for a better refinance interest rate now. Do you expect your credit rating to go down, or did you lose your job?

Your Personal Time Line – How long do you plan to be in the home and keep the mortgage? Will you be there long enough to recoup the closing cost? Are you looking to rent your home in the future? Will the lower payment allow you to rent it more easily?

Your Budget - Do you need to refinance to make more room in your budget? Refinancing can sometimes lower your payment and allow you to set more money aside for savings. Refinancing can also increase your payment if you want to get rid of your loan faster and pay less in interest.

Principle You’ve Paid – Consider how much you’ve paid into the loan already. If you’ve paid 20% of your home’s value, you may be eligible for a drop of your private mortgage insurance (PMI). If your current lender won’t drop it, consider a refinance to get rid of it.

What You’ll Need to Complete a Mortgage Refinance Calculator

There are a ton of free refinance calculator available on the web. Bankrate.com has a nice one. Here are the items you’ll need to complete the refinance calculation:

Current Loan Amount – Here you’ll enter the amount you borrowed to buy your home. As an example, say you bought a $200k home with 20% down, your original loan amount would be $160K.

Current Interest rate (%) – Simply enter the current interest rate on your home mortgage.

Term (in years) – Enter the amount of years your original mortgage was for (i.e. 30 yrs, 15 yrs.)

Current mortgage balance – This is how much you currently own on your home mortgage. Find your latest bill and look for the balance.

Refinance Interest rate (%) – Here you’ll put the interest rate you’ve been quoted on the new loan.

Term (in years) - What is your new term? 30 years? 15?

Pre-payment penalty (%) - Will you owe a prepayment penalty for paying off your old loan amount a bit early? If you don’t know, call your current lender and find out. This needs to be factored into your decision.

Closing costs on new mortgage - Closing costs often include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge, and other costs assessed at settlement. The closing costs typically run around 2% to 6% of the new mortgage total.

Number of points on new loan - This would be any extra money you are paying to achieve a better interest rate.

I haven’t quite made a decision on my own mortgage refinance yet. Have you refinanced lately? Do you have some other factors I should consider?

Would You Consider a Move for More Job Opportunity?

PT — Mon, 10 Aug 2009 16:13:54 +0000

Would you ever consider relocating to a city with more job opportunities? CNN Money recently released their Best Places to Live 2009 list. This year’s ranking was, for obvious reasons, heavily slanted towards cities that provided the most job opportunities. The top ten cities were:

1. Louisville, CO
2. Chanhassen, MN
3. Papillion, NE
4. Middleton, WI
5. Milton, MA
6. Warren, NJ
7. Keller, TX
8. Peachtree City, GA
9. Lake St. Louis, MO
10. Mukilteo, WA

Early in my career I made a move to a city with more opportunity. At the time I didn’t have any responsibilities or ties that could hold me back from moving. I didn’t have a wife or kids in school. I was free to find the best place for me at the time.

Looking back, I definitely consider it a good move from a career perspective. I’ve changed jobs 3 times within this city since first moving, and at each change I had multiple job opportunities made available to me. I wouldn’t have had those I don’t think had I stayed put.

Now that I do have a wife and kid, as well as a community that I’m involved in, it would be a tough decision to make the move to a new city just for a job opportunity. Do you think you could do it? Have you made that move? I’d love to hear about it in the comments below.

Here are a few of my favorite articles from last week.

QuickHits

Giveaways

Carnivals

Have a nice week.

Taking a Closer Look at Making Home Affordable Program

PT — Tue, 02 Jun 2009 23:27:12 +0000

The guest post is by Ann from Buxr.com, an online bargain hunting community. The site invites members to share online deals as well as discuss all kinds of questions related to money and finance.

In an effort to make good on his promises to establish a plan to bring the country out of the current housing slump, President Obama has started the Making Home Affordable program. In essence, the plan will, according to the Los Angeles Times, save the homes of some nine million or so Americans who are facing imminent foreclosure, or have become unduly strapped because of rising interest rates on their mortgages.

Some of those fortunate or responsible enough to have kept their mortgage payments up-to-date are seeing relief from Uncle Sam. The Making Home Affordable Refinancing program’s premise is simple: responsible, paying homeowners who had had a first mortgage with the now-defunct Freddie or Fannie can get a refinanced mortgage for up to 105% of their home’s true value. The 80% threshold of Fannie and Freddie pales by comparison.

The rules for getting the new loans are somewhat stringent. Besides the more obvious rules, such as requiring the borrower to have a job, and live in the home primarily, you have to owe more than your home is worth. You also have to have paid your monthly mortgage payment on time for the last consecutive twelve months. You cannot have a payment due that is more than 105% of the home’s true value.

The program will benefit people who have special circumstances, such as a balloon payment or variable APRs. People who have a fixed rate could actually be harming themselves because they may have locked in a lower rate than the current prime. If such is the case, the owner obviously would not save any money.

There is an alternative loan for those who are facing foreclosure, called Making Home Affordable Modification. This program has less strict standards, and is appropriate for homeowners who are about to be foreclosed upon. In fact, the rules for the loan are such that the borrower must be in pretty dire financial straits to qualify.

To see if you are eligible for either of the programs, go to the site MakingHomeAffordable.gov. Notice this is a government website. While viewing the site, take self-assessment tests to see if you qualify for one of the new refinancing loans. Even if you do you qualify for either of the assistance programs, you may still have to wait. Lenders are not required by law to participate, so only time will tell what kind of support the program will receive from loan institutions.

Post image by kevindoole

Pay Your Property Taxes and Sales Taxes Prior to Year End

PT — Mon, 29 Dec 2008 18:26:07 +0000

If you’re looking to reduce your federal taxes for 2008 here are two things I’m doing that you should consider before the end of the year:

Pay Your Property Taxes

Here in Texas my property taxes aren’t due until January 31. However, these taxes can be deducted as an expense against your income on your 2008 federal tax return, as long as you pay them in 2008. I paid mine a week or so ago in full with the money I’d saved through my employee stock purchase plan (ESPP).

If you escrow your property taxes (i.e. pay them with your mortgage payment) then consider making an extra payment or two prior to year end. This will decrease your taxes by increasing the amount you can deduct for mortgage interest expense and property taxes.

Pay Your Sales Taxes

If your plan is to make a large consumer purchase (e.g. car, boat, etc.) within the next few weeks, consider making the purchase prior to year end. The sales taxes incurred on the transaction can be deducted from your 2008 taxes.

We’re considering a new car purchase over the next few days. We’ve been able to secure some very reasonable financing and we’re aiming to make the purchase within a day or two. The sales tax we’re paying on the new car can then be deducted as expense on our 2008 tax return, lowering our taxes.

A word of caution…don’t let the “tail wag the dog” here. Unless you were already planning a big purchase, don’t shoot for this deduction. Making a big consumer purchase is best when you’ve had time to evaluate your needs and create a plan to get the best deal. Don’t go buy something big just to get a little tax deduction.

Other Year End Tax Tips

9 Year End Tax Savings Tips @ Free From Broke
Year End Tax Moves @ Cash Money Life
Year-End Tax Tips: 2008 @ Million Dollar Journey
17 Tips for End of Year Tax Planning @ My Dollar Plan
Year End Income Tax Guide (Part 1) @ Tough Money Love

What other year-end tax plans do YOU have?

An Update on My ESPP Flip

PT — Thu, 20 Nov 2008 11:51:08 +0000

Six months ago I shared that my company ESPP had become my property tax escrow.

ESPP Information

A quick refresher…an employee stock purchase plan (ESPP) is a benefit offered by some publicly traded corporations. It’s basically an account you stash money into for a specified period of time (6 months for me), and at the end of the term, your funds are automatically used to buy company stock. Where’s the benefit, you say? Well, you get to buy the stock at a discount (for me, 85% of the price). That’s a 15% return. Nice!

Flipping an ESPP

“Flipping” the ESPP is when you immediately sell your company shares upon purchase. I plan on flipping my ESPP for a couple of reasons. One, I have too much of my portfolio and livelihood invested in my company already (i.e. too many eggs in one basket). Two, I need this money to pay my property taxes, due in January 2009.

Are ESPP Flips Ethical?

Some have questioned flipping as unethical. I challenged that idea initially, and have been validated by my company’s recent move. The brokerage firm that handles our ESPP process allows you to sign up for ESPP Quicksale. The Quicksale is what it sounds like: by activating Quicksale, the broker will immediately sell my shares of stock in the company upon purchase. They are essentially doing the flip for me. Hardly unethical I’d say.

The ESPP Flip Proceeds

The cash proceeds from the Quicksale will be deposited into my account or sent to me as soon as the transaction settles. We’ve signed up for the next round of ESPP as well. I see this as another great short-term savings vehicle we’re likely going to use every time it’s offered.

Do you have a ESPP like me? Do you flip it? If not, why? Do you see it as unethical?

Home Inspections: For Existing and Even New Construction Homes

PT — Mon, 10 Nov 2008 12:14:19 +0000

Home Inspection After One Year

We just had our home inspected. Those of you who have been following along more than a year might be questioning that move. “Didn’t you buy a house last year this time, PT?” As a matter of fact we did. So why are we just now getting it inspected? Well, because we bought a new-construction home with a one-year builder’s warranty. We decided that it would be best to trust the city/county inspections and builder reputation, then have our home inspected just prior to the end of the first-year warranty period.

It worked out well for us. We found our inspector through the recommendation of a neighbor. The inspection cost us $250. Well worth the price, in my opinion. Not only did the inspector make us aware of a all safety and cosmetic changes that needed to be made, but he gave us the confidence and knowledge going forward that we have a safe and working home.

A couple of items our inspector found that you might want to review in your own home:

Automatic Garage Door Pre-Install Lock – Every automatic garage door comes with a manual slide lock that can be used to secure the door prior to the motor being installed. If the automatic garage door is activated with the lock slid into place, the whole door will rip apart, as the lock isn’t strong enough to hold both sides of the door down. I didn’t even know this lock was there, and would likely have slid it into place at some point upon noticing it. One forgetful moment could then turn into a severely damaged garage door.
Missing Anti-Tip Device for Oven – All new ovens come with an anti-tip device that prevents the oven from tipping over if someone were to step on the open door. This device has to be installed properly though. If you have kids, you know how tempted they could be to step up on the open oven door and reach for something on the stove top. This device will prevent the oven from tipping and should be properly installed.

These are just a couple of the items the inspector noted. Once he provided the report of corrections needed to be made, we turned in the list to the builder who got to work correcting all the issues.

Typical Home Inspections

The most common time to have a home inspected for existing homes is right before the purchase. It’s also common now to make an offer on a home, with the condition that the home be inspected. Any big issues can negate the offer.

If you are working with a realtor, they will likely refer you to a licensed home inspector. It’s probably a good idea to review your inspector against the following professional organizations:

Those sites are also good for learning what a home inspection actually does and does not cover, which is important to know.

If your inspector is not a member of one of the national organizations then they need to at least be licensed as a professional in your state. Here in Texas that’s handled by the Texas Real Estate Commission (TREC). The inspector we used is licensed under the TREC as a “professional inspector”.

Have you got tip related to home inspections? Please share it in the comments below.

Photo by :cindy47452

Pay Off Credit Cards With Home Equity: Secured and Unsecured Debt

PT — Fri, 25 Jul 2008 11:30:31 +0000

After yesterday’s guest post, Would You Consider a Home Refinance to Pay Off Credit Cards?, caused a bit of a backlash, I thought I would follow it up by covering the topic in detail. First, here’s one comment from reader Cat:

NEVER EVER replace unsecured debt with secured debt. To even give this subject a thought is irresponsible. If you are responsible enough to pay down your debt, you shouldn’t need to refinance your home. Also, if you are having trouble making your payments, your credit score is suffering and you would likely not get a great rate on the refinance. Please post a follow-up article explaining secured debt and unsecured debt. You have misled readers today.

Thanks for not holding back, Cat. Seriously, thanks for inspiring this post. You are right that this was needed. Not to be one to mislead my readers, here’s the deal on unsecured vs. secured debt, and the question of using the latter to pay for the former.

Home Equity | Secured Debt

Secured debt is debt that has an asset legally attached to it. It’s not just that you bought an asset; the asset is actually “attached” legally in the agreement. This asset is the “security” for the debt. If you default on the loan (i.e. stop making the payments) the company that lent you the money for the asset will just come take the asset from you. It’s their legal right under the secured agreement to do so. Examples of secured debts: home mortgage and home equity lines of credit, auto loans, and boat loans.

Credit Cards | Unsecured Debt

An unsecured debt doesn’t have an asset associated with it. You may have purchased an asset with the debt, but the asset isn’t included in the agreement. If you default on the loan, the company that lent you the money has nothing to take away from you. All they’ll do is call and harass you and ruin your credit score, rightfully so. Examples of unsecured debts: credit card debt, gym memberships, some personal loans.

Using Secured Debt to Refinance Unsecured Debt

That leads us to the issue at hand, should you use your home’s equity (secured) to pay off your credit card debt (unsecured)? Initially, and in most cases, I would say no because you’re moving debt from an agreement that could only cause harm to your credit score to an agreement that could actually cause you to lose your home. If you default, you’re back living with Mom and Dad (or worse, on the streets) because you didn’t pay your debts. Debt that was originally created to buy something that was likely a want instead of a need, like an XBox 360.

But is it “irresponsible” to to even consider it? Let’s examine a situation when it might not be irresponsible to payoff credit cards with one’s home equity. Imagine a guy named Max suddenly owes $25,000 in credit card debt due to unexpected medical costs. His insurance just didn’t cover everything. The interest rate on the card is 18%, the best he could get with his so-so credit score. Each month though he’s making payments on time, even paying extra every once in a while.

Continuing with the example, imagine that just last year Max put down $25,000 (5 year’s worth of savings) on his first home purchase. Therefore, he has equity sitting in the home and can now take out a home equity loan (at 10%) to pay off the credit card debt. In Max’s situation, I’d say the home equity loan is a move to consider. After all, isn’t it not much different than if he’d put 0% down and used the savings for the debt repayment? The small risk of transferring the debt (and having no equity in his home) is worth the savings in interest charges for a responsible guy like Max.

I realize the scenario above wasn’t presented in the guest post yesterday, and that in most cases people use home equity loans just to get back into more debt. Still, I’m just trying to show that every one’s situation is different (the “personal” in personal finance) and financial products can be used both poorly and responsibly.

A Better Solution for Unsecured Credit Card Debt

A better solution for unwanted high-interest credit card debt, in my opinion, if you have a decent enough credit score, might be to do a 0% intro rate credit card balance transfer. Your debt remains unsecured, and you completely avoid future interest charges. Just be sure to quit using your credit cards after the transfer. I’ve used transfers in the past to pay off credit card debt and come out on top.

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I’d love to hear more of your opinions on this issue. Let me hear from you in the comment section below.

Would You Consider a Home Refinance to Pay Off Credit Cards?

Guest — Thu, 24 Jul 2008 13:32:31 +0000

Editor Note: The following is a guest post.

Credit Card Debt

High interest credit card debt cripples people who charge more than they can afford. If we could all pay off our credit cards in full each month, chances are we wouldn’t be using them so often! Making late payments then causes us to pay even more in late fees and sometimes, an across-the-board interest rate increase on all of your credit card accounts.

If you’re a homeowner, you’ve probably considered refinancing the house to pay off your credit card debt to give yourself a new beginning. As with any financial decision, there are advantages and disadvantages to refinancing your mortgage to get out from underneath credit card debt.

Paying off Credit Cards with a Mortgage Refinance: Disadvantages

When you refinance your mortgage to pay off credit card debt, you will more than likely be able to save interest but it isn’t the perfect solution. Refinancing typically requires closing costs, which could be in the $3,000 range. There are some lenders who will help you out by rolling this amount into your mortgage, but you still end up paying for it, and if you choose to pay for it by rolling it into the mortgage, you’re doing that with interest, too.

Paying credit cards with money taken from a mortgage refinance means you are putting your house on the line as collateral. If for any reason you can’t keep up with the mortgage payments now that you’ve included your credit card debt in them; the lender could take your home. If you decide to refinance to pay off credit cards, you should be 100% certain you’ll have no problems repaying it.

Another disadvantage of refinancing your home to get rid of credit card debt can be experienced if you try to sell your home. If you borrow more against your home and then attempt to sell it, it’s more likely that you will not be able to sell the home for the amount you still owe on your mortgage. Just because your house is appraised for a certain amount does not mean you can get that when you put up the for sale sign. If you’re looking to sell your home in the near future, you may not benefit from refinancing the home to pay off credit cards because it could make it difficult to sell the home for more than what you owe; or to even break even with our current economic condition.

Paying off Credit Cards with a Mortgage Refinance: Advantages

Despite the potential disadvantages to refinancing a home to pay off credit cards, there are of course great benefits to doing so. If you are finding it really hard to keep up with all of your bills each month, refinancing consolidates some of those accounts, reduces interest and can sometimes give you a lower payment which will help you considerably. As you are better able to make your payments on time each month under the new arrangements, you’ll also start noticing an increase in your credit score, which will help you over the long term.

Most people find refinancing their mortgage to be a great option if the amount they can obtain from the refinance is enough to completely pay off their credit card debt (and maybe even enough to pay personal or car loans, too). It works like a debt consolidation loan, with the exception that you are securing the debt through your mortgage. Having a single payment each month for each of your various accounts can certainly help your financial situation.

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Do YOU agree? Is a home refinance for credit card payoff a good idea? Let me know in the comments below…

This is a guest post from Debbie Dragon, a writer for CreditorWeb.com; she writes about credit cards, rewards programs, and personal finance.

Do You Feel Sorry For Ed McMahon?

PT — Fri, 06 Jun 2008 17:48:58 +0000

*mild rant warning*

Did anyone else catch Ed McMahon and his wife on Larry King last night? Apparently Ed McMahon’s mansion is going into foreclosure. Ed is $644,000 behind in payments on the $4.8 million mortgage.

So how did Ed get in this position? Here’s his take from last night: ‘’If you spend more money than you make, you know what happens,’’ McMahon said […] ‘’You know, a couple of divorces thrown in, a few things like that. And, you know, things happen.’’

Okay, not bad Ed, you at least acknowledge what happened. But why are you going on Larry King and making a big deal of this?

Ed said: “There’s a lot of people [who] have problems and I’m hoping that this will help them help themselves. That’s what my plan is.”

Really? If I was someone really struggling with potential foreclosure, an adjustable rate mortgage, and crooked lenders, I would be offended that Ed is comparing himself to me.

In my opinion, a millionaire, who could get any type of mortgage he wanted, has no business being the spokesperson for the foreclosure issues facing the few who really got dupped.

I’m calling B.S. on Ed and his “troubles.” I’m convinced he’s simply hyping this to get the house sold.

Oh, and did you catch the selling price of the home? It’s listed at $6.25 Million. So, if I calculate this correctly, Ed stands to take away over 1 million in equity when it sells. Hey Ed. Here’s a tip to get your house sold. Lower your price, buddy.

His lawyer has apparently mentioned that they might start a donation fund for Ed and his situation. So sad if this happens with all of the legit needs out there.

The Media Hype – The New York Times called Ed a “Housing Crisis Casualty.” Really, NYT? If he’s a “casualty” isn’t it a self-inflicted wound?

Do you feel sorry for Ed? Share your thoughts in the comments below.

Photo by Alan Light

My Company ESPP Has Become My New Property Tax Escrow

PT — Fri, 30 May 2008 19:42:26 +0000

You, Me, and ESPP

For a few weeks now my company has been touting their Employee Stock Purchase Plan (ESPP). I’m new to the company and have never participated in one of these before, so I really didn’t know what to think. I already have some company stock (via options) from when I was hired. In my opinion owning those options has been enough. You never want to own too much of one stock, right? Definitely not your own company. After all, being that I’m employed here, I’m already heavily invested in them.

15% Return? I’ll take it.

Well, a co-worker (who knows I love talking saving money) started talking to me about this plan and told me she was going to do it. She shared with me the basic concept. You make automatic contributions (between 1% and 10%) every pay period to a fund, that after six months is used to purchase company shares of stock at a 15% discount. You are then free to do whatever you want to with this stock. If you sell it that same day (called ESPP “flipping”), you simply make the 15% discount. Not bad for six months, right? That’s an annualized return of 30% less taxes. Nice. I’m not going to be getting that anywhere else. It’s actually more of a return if you look at it like this.

Can We Do This?

My thoughts quickly turned to my property tax self-escrow with ING DIRECT. Why not use the ESPP in place of the ING DIRECT account (currently earning 3%)? For the record, we have our emergency fund with ING DIRECT as well, so I wouldn’t be pulling ALL our money out of savings, just the property tax portion that I had set up in an extra account (contributing $350/mo.)

My next step was to do some actual, in-depth research on ESPPs and my company’s plan to be sure this was right move for Mrs. PT and I. You didn’t think I’d just blindly sign-up based on a few co-worker’s suggestions did you? I’ll share what I learned about ESPPs next week.

Other Thoughts on ESPPs

Here’s a very pro-ESPP post, ”the wonderful world of employee stocks” (@ Punny Money), which basically says at the 15% discount I’m getting, I’d be silly not to do it.

This article, “Cash in the Cubicle“ (@Market Watch) is also very positive in it’s overview of the ESPP.

A write-up (@Fairmark.com) called “Flipping ESPP Shares” discussed the ethics of doing ESPP flipping, which is what I’d be doing. Do you think this would be an “abuse of the benefit”? I really don’t.

Lastly, check out this read (@The Finance Buff) on employee stock purchase plans and how “ESPPs are a Fantastic Deal“.

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I went ahead and signed up for the ESPP today, as it’s the last day to sign up. I’m pretty excited about this benefit and I’m super glad my company rolled it out. Is anyone else using an ESPP to flip for a quick profit?