Real World Finance$

Want to be in a booming business during this current real estate and mortgage affair?  Check out this story I heard yesterday on NPR titled Foreclosures Keep Locksmiths in High Demand.  The story follows around a DC area locksmith as he spends long days and weekends working for banks changing the locks on newly foreclosed homes. 

He says he’s seen everything from the really nice, big brick homes to a small duplex in the ghetto.  It’s hitting everyone.  His routine is to get into the house by picking the lock.  It seems that foreclosed owners at least think to lock the door when they leave, and take the keys with them!  After getting in the house, he marches through checking all the rooms and closets for signs of people still in the house since he doesn’t want someone surprising him while he works (it has been known to happen evidently).

It was sad to hear him walk through a house and point out where carpet had been ripped up, appliances removed (dishwashers and the like that should have stayed) and just some of the general destruction people will do to their former home before they leave.  One house even still had a room full of children’s toys and pictures of the kids playing still stuck to the fridge. 

A booming business to be sure in these times, but one that would certainly take it’s toll on your psyche.  The story is less than 10 minutes long and I think it’s well worth a listen to hear the foreclosure market from the front lines.  These are the first guys there when a home is foreclosed, within hours.  The bankers and mortgage brokers don’t see the people from this view point I can assure you.

Because I love house, old houses in particular, I have relationships with a couple of Realtors and a couple of mortgage brokers.  We are still a few years away from buying our first investment property, but I keep my eyes open anyway.

From one of the mortgage brokers I know, I got an e-mail the other day about a brand new mortgage accelerator program they are offering.  It tauts paying off your 30 mortgage in like 10 years or less.  While I like the idea of not having a mortgage someday, I’m also very skeptical about these sorts of things.  But, this being a very well respected and highly recommended mortgage guy by many local rehabbers, I checked out the link. 

It looks like the this mortgage accelerator is not a mortgage at all, but a large home equity line of credit.  The intent is that you use this HELOC as your main checking account.  By setting up your direct deposits there you instantly reduce the equity and cut down on the amount of interest owed every month.  The program helps you take advantage of the extra money sitting in your checking account during the month to reduce your mortgage interest and help increase the equity in your home.  I’m guessing you don’t really have a “house payment” per se because you are depositing funds on a regular basis.  While an interesting, and very intriguing idea, I do have a couple of issues with this:

• Surely this would make it easy to overspend if you do not keep on top of your finances.  If your main spending account is actually a HELOC, then you can just keep spending until your equity is tapped out.
• The tauted “pay off your 30 year mortgage in less than 10 years” is based on you “saving” 10% of your take home pay every month and thus leaving it in your account against your mortgage.  If you can put that much extra payment every month against your mortgage, then your results will vary.

In short, this could be a VERY good deal for someone who is intent on paying off their mortgage early.  However, I think you would need to be very disciplined in that regard to really make this work.  If you have that sort of discipline, I don’t know that you would need this program to start with.  It’s unfortunate they come up with this sort of stuff that can be useful to a small group of people and then promote it to the masses who won’t use it correctly. 

I can easily see more people getting in trouble with this type of product rather than using it the way it was intended.  If you want to check it out for yourself, you can do so here.  I just wouldn’t recommend actually using it!

I saw this article yesterday at the NY Times. 

Stronger Rules for Mortgages are Proposed

A quick except from the article says:

The changes include tougher disclosure requirements for banks and Wall Street firms, a nationwide licensing system for mortgage brokers and new rules for credit rating agencies,

It’s about time is all I can say.  Why is it that most states have licensing requirements for anyone wishing to sell or broker real estate, but there are not similar laws and requirements for those people who actually sell the money used to buy said real estate?  I would have expected it to be the other way around.  After all, the majority of consumers these days get a mortgage to go with their house.  Very few will EVER buy a house without one.

Of course, commercial and investment real estate is still often done with cash or private “hard money” type of loans, so the need for real estate licenses is also a very real need to protect the consumers there as well. 

If we are talking about a regular consumer of residential real estate, the broker (I don’t use the word Realtor (R) because you don’t have to be a member for that organization to sell real estate) can only go so far without the buyer having a mortgage to pay for the property.  If that mortgage person is licensed and held to tougher standards, it forces the broker (and their agents) to meet those same standards of conducts in order to get business done.

I’ve said before that I would really like to see a mortgage company that offers financial counseling first.  Let’s say they were to offer a financial review and help people with their finances to be prepared to buy a house.  They could charge for those services up front, and then credit that money back to them if they chose to get a mortgage through them.  That way the company isn’t out their time and effort if the people go elsewhere or decide not to buy.

While I am typically a fan of a smaller and less involved government, government oversight into financial transactions is essential to preventing swindlers from making a quick buck.  For too long there has been too little oversight into one of the largest debts taken on by American consumers.

Sorry about being gone for a few days.  Things have kept me busy at work and at home.  The next month or so will be tough for me as I start working my teaching job 2 nights a week rather than one.  Each of these classes has a lot of students as well, so grading homeworks and exams will keep me tied up quite a bit on weekends as well.

With that said, things are going well around our household.  Our budget this month is pretty much on track at this point.  I called yesterday to cancel our old checking account so we can fully work with our new accounts at this point.  I had already transferred all the money out of it to our E*Trade savings account last week, so we are free and clear there.

Also, we’ve gotten the checks in the last week for the escrow account clearing from our previous mortgages.  One was just $65 and was only because the pay-off was over paid.  It was our second on the house so there was technically no escrow account.  The other check came in over $900 and is on it’s way to the savings account now. 

Our goal is to have $4000 available by April to pay down the AC debt before moving it to a low interest credit card from our current no payments no interest for a year plan that expires in May.  By then, we’ll have the small balance on our other credit card paid off and the extra $350 a month available to make the minimum payments and still be in budget.  Also by then, we’ll have my wife’s dental bill paid in full and be able to save more of my paycheck from the second job. 

To help pay things off more, I also still had about $100 in a Bank of American checking account that I opened just to get the $75 bonus they offered for making a $25 deposit and holding it for 60 days.  That 60 days is up so I transferred the money sitting there into an extra payment on our big line of credit there. 

Things are shaping up to look pretty good this month debt wise.  I think we’ll make a nice chunk of our debts disappear this month and our assets should continue to go up (no help from the stock market of course).  It’s only the 12th and I’m already excited to see how the end of the month turns out.  Of course, my birthday is just a little over a week away at this point, so I’ll have to make sure I don’t splurge too much on myself!

Our closing for the refinance of our mortgage is on Thursday morning.  Here are some of the details.

Current:

• 1st Mortgage was for $144k and was at 7.125%.
• 2nd Mortgage was for $36k and was at 8%
• Total monthly payment with Taxes and insurance was $1475

New:

• One mortgage for about $190k (including closing costs) at 5.875%
• We should get back $4-5k at closing.  We will put that in our E*Trade savings account for 2-3 months until we get a HELOC to pay off the financing we had for the AC.  Then we will pull this money out and make a big payment on and leave the rest on the HELOC.
• New monthly payment on just the mortgage with taxes and insurance, approximately $1325.
• Extra we expect to pay monthly on a HELOC for a 10 year term, $150

So, in the end, we will have a larger mortgage, but only by about $3-5k after we reduce the AC loan.  Our appraisal on the house also came in a couple thousand dollars higher than we had expected. 

In the end we will have several benefits.

1. We can pay off the AC loan before the 1 year no interest, no payments expires.
2. We will keep essentially the same mortgage payment but roll in the nearly $16k of AC debt.
3. With a HELOC, the payments for the AC loan will also be tax deductible, so we should still keep our same amount of interest deduction this year.

It’s getting close to the end of the month.  I’m a little curious how we will end up financially.  With buying the new car and paying end of year personal property tax it will be a little up in the air.  I don’t think we will have slid backward much, if at all.  But I also don’t see us making a big leap forward, if only because of the new car loan.

Cash wise, I know we are doing better.  Our retirement fund is up as well.  And I know our credit card debt will be down as well.  That said, the only change that will effect our net worth is the asset value of the car and the new car loan.  So, in total, we really shouldn’t be bad at all this month (especially considering we made it through Christmas and LOWERED our credit card debt). 

Next month will be an interesting one.  We will need to pay the sales tax on the new car early in January.  However, we will not be making a mortgage payment due to the refinance.  We will also be getting a few thousand dollars cash at closing which we will put in the savings account until we get a HELOC to pay off the AC loan we currently have. 

While we we have a considerable increase in cash next month, the change in mortgage value of the house by about 10k will be a bit of a hit also.  I’m sure that will cause our net worth to drop some next month.  The appraiser did stop by the house yesterday, so I’m likely to get a small boost from an upward appraisal due to much of the improvements we have added to the house, but I still don’t think that will offset the entire extra mortgage amount. 

The good news is that the new mortgage payment and any HELOC payment we will need to make should put us with approximately the same payment we have on our current house and we will have rolled in nearly 16k of debt from installing central air in the house.  Lucky for me, I’m not hugely concerned about my net worth goal for next year.  I know if we can meet the other 3 goals, the net worth goal will take care of itself. 

On  a lighter side, I have my updated direct deposit form sitting in front of me.  I need to fax it over to my employer and hopefully by mid-January I’ll be using one of my new checking accounts to pay bills and another one for our spending allowance between pay checks.  It should be helpful for us to be on a more fixed budget and more automation with paying our bills from a separate stash of money.  Here’s to hoping all the work I’ve done the last few months starts to show some results in the New Year!

Related Posts:

• The Mortgage Refinance
• 2008 Financial Goals
• Our New Financial Structure

As I’ve said before, I’m a bit of a numbers geek.  With going through the house refinancing, new car purchase and debt repayment plan I’ve found myself making amortization schedules several times so I can see what type of balance I’ll have left when based on payments and rates.

Because of that, I thought it would be a good idea to make one to help out my readers as well.  So, I built a nice little form in Excel that does all the calculations for you and puts together the complete schedule as well.

You can find it over on my Files for Download page.  I realized too that my Loan Consolidation Worksheet was not included when I migrated over to the new website, so I’ve put it there as well.

 Make good use of them and let me know if you find any problems!

So, in working on refinancing our mortgage, we ended up going with a local broker who we have worked with in the past.  After getting the pressure and stupidity from CitiMortgage I’m not going to follow through with them.

I had gotten quotes from our previous broker as well as another local broker that came recommended from a number of people I know.  The new place was a smaller firm with less cost and gave me a great deal.  My old broker though agreed to match that rate and closing costs to keep our business, though it means them eating some fees and costs for points, so we stuck with them.

So, as I had mentioned previously, we did updates to our home and wanted to do a cash out refinance up to 95% loan-to-value to roll in the cost of the improvements.  However, as we’ve discovered, that just isn’t going to work due to Freddie Mae and Fannie Mac guidelines.  They can however go up to 90%.  So, here is what we have in progress.

1. Take out a new mortgage at a fixed 5.875% rate with no points or origination (I locked the rate late last week during a dip) for 90% of the newly appraised value. 
2. Use the proceeds to pay off the prior first and second mortgages.
3. Put the remaining cash out from the closing into our high-yield savings account.
4. Between now and the end of May (when the no payments/interest financing on the AC end), we will find an apply for a Home Equity Loan for the balance of the AC debt.  Our current bank is offering this at present.
5. Come May, we will withdraw the cash out funds from our savings and apply agains the AC bill and then pay off the rest with the Home Equity Loan before the end of the promotional period. (Worst case here if we can’t find the home equity loan is to transfer to an open credit card we have now at 5.99% and make the same payments we had planned on before, which we may do anyway if the tax benefits of the HE Loan don’t outweigh the higher rate).

Because we got such a good rate for the 90% loan (and no PMI), even with taking out a higher mortgage our payments will be going down nearly $200 a month after coming from our first and second of 7.125% and 8%. 

We will be trying to refinance by mid January to avoid both the January and February payments.  And no, they won’t be going to waste.  Part of one will go to pay the sales tax on the new car and the rest will be put into the savings account along with the loan proceeds. 

All in all, we should come in under the budget I had set for next year and a better payment than I had expected.  That should help us get closer to our goals for next year and speed up our process of repayment of our other debts.  Now, let’s just hope everything goes smooth with the loan approvals.

I got a new credit card in the mail yesterday. The biggest problem? I didn’t apply for it! No, this wasn’t one of those fake cards with the pre-approved application, it was an actual card for activation.

How did I end up with this? I’m still working that one out. Evidently when I talked with CitiMortgage about the possibility of refinancing, they signed me up for a home rebate card. It pays 1% of all purchases off of the mortgage.

I called today to cancel the card without activation. I had to get transferred to a “specialist” to handle the cancellation. I got several comments from the specialist that it must have happened in another department, they didn’t do it. After confirming it was canceled, I asked how it would appear on my credit report.

She commented that it would show up as cancelled by card holder. I said I didn’t want it to show up at all since I never authorized the card to begin with. She again said it wasn’t her fault. Then, evidently having a bad day, she said, “It was another department, and you aren’t going to take it out on me today.” After which she hung up.

Remind me to NEVER again do anything with Citi. I’m looking forward to getting the mortgage refinanced elsewhere and getting everything closed with them, for good, forever.

As I posted a couple days ago in Should I Renegotiate My Mortgage, I was going to see about consolidating our first mortgage with CitiMortgage and our CitiFinancial credit card that financed the central air install a few months ago. So, I called CitiMortgage (C) yesterday to see if they would be willing to handle this. While they can’t simply roll in the amount to our balance and update the payments, he did offer me a refinance deal.

Because of our standing as good clients (yep, we actually pay our mortgage on time every month, or, this month twice!), the offered us first a streamline refinance with no closing costs or fees. Basically, they just reduce our rate from 7.125% down to 6.25%. A pretty sweet deal I must say. However, we need to roll the central air money into the mortgage before the end of May in order to avoid finance charges (it was 1 year no payments no interest). For that, we will have to do a full refinance with closing costs and all that good stuff.

The total refinance would bring our 2 mortgage up to about 95% loan to value. That’s a big no-no in today’s market no matter your credit. But, since CitiMortgage is the first lien holder, they are mainly concerned about not having more than 80% of the value on their mortgage, which this refinance will still do for them. They plugged in my estimated home value and new income and we were approved in about 4 hours. It’s just a matter of paperwork and they will finish everything up, including paying off the CitiFinancial card for us. This refinance comes with the 6.25% they offered before and no points.

There will be a $445 application fee to move forward, which kind of stinks. They also estimate about $4k in closing costs and pre-paids which they will roll into the balance. That’s good, because we can’t afford to pay those at the moment. It’s strange though because they will make me fund a new escrow account and then we will get our current escrow account refunded to us later. What a scam.

All in all though, I think it will be a good deal for us. We will be rolling in 16k of debt plus the 4k in closing and pre-paids. With the drop in the interest rate on the mortgage, our monthly payment will be increasing by $27! That’s nothing. I had budgeted for it to go up over $100 when we did all this, so that’s really good news. It will take a big headache off of us going into the new year having it done. The skipped payment that comes with a refinance will also give us the cash to pay sales tax when we buy a new car next year.