August 28th, 2009
Refinancing your house is a major hassle. You have to produce tax returns, earnings records and all the other miscellaneous documents your lender demands. Your property must be appraised, your credit is run through the ringer, and you have to make sure your lender doesn’t stuff your loan with a boatload of miscellaneous fees and charges. It is time consuming and stressful.
There are also up-front costs. Your lender isn’t going to begin the process without a little cash changing hands, and if your house does not appraise or you are not happy with the terms offered to you, you are out that money.
Should you put yourself through this?
Special caveat — If you are trying to save your home by modifying your loan using one of the bank bail-out programs to lower your payments, stick with it. Once you are settled in your new loan, contact me.
If you are refinancing to shave your interest rate and to save a few dollars a month on your payments, there are a couple of big things you need to consider: the true cost of refinancing and the true savings of your new loan.
1) The true cost of refinancing –
Typically the cost of refinancing is about 1-1/2% of the loan amount. If you are borrowing $200,000, the amount will likely be about $3,000. Compared to the size of the loan, it doesn’t sound like much, does it? But if you are like just about every other homeowner, you will be tacking that amount of money onto your loan. In effect, you will be borrowing $203,000. Over the life of your loan, that $3,000 at 6% will turn into $6,475.15. That still doesn’t sound too costly, does it?
But what if that $3,000 had been doing something else all that time? If instead you had invested the $3,000 in paying down your mortgage, you would have canceled the first fourteen payments of a $200,000 loan at 6%. That would mean fourteen payments that never have to be made, totaling $16,787.40.
Add the $6,475.15 in actual costs and the $16,787.40 lost to payments, and the total of your closing costs is really $23,262.55.
2) The true cost of your new loan –
When you refinance, your new loan resets to Month #1. Once again you are 360 payments away from having your home paid off. The rule of thumb over the past couple of decades has been to refinance when interest rates drop about 1%. That dogma is wrong and is designed to keep you in debt forever. It will help your bank build the largest building in town, but it absolutely will not help you.
Typically people refinance every 5 to 7 years. If you have had a $200,000 loan at 6% for 5 years, you will have paid down $13,891.29 in principal. That doesn’t sound bad, does it? But wait. You also will have paid $58,054.78 in interest. You will have paid 4 times as much interest as you paid in principal. Every month you pay on your mortgage, you pay a little more principal and a little less interest. It will take 18 years and 7 months (223 payments) for the principal part of the payment to finally exceed 50% of the total payment. That means it will take 223 payments before you are finally paying more principal every month than you are interest. If you refinance after 5 years, your new loan will start all over again, and your initial payments will again be weighted toward paying interest.
Let’s assume you refinance your $200,000 loan that was at 6% for 5%. The payments will drop from 
$1,199.10 to $1,073.64, a savings every month of $125.46. Sounds pretty good, doesn’t it? Over 360 months, assuming both loans were held until payoff, the total interest paid on the second loan would be $45,165.60 less than that for the original $200,000 loan at 6%. Pretty good.
But wait. We’re not done. Remember the true cost of the closing costs was actually $23,262.55. And don’t forget the lost interest from the first loan was $58,054.78. Subtract these from the $45,165.60 in potential interest savings and, provided you do not refinance again, the savings over 30 years is no savings at all. It is a loss, and it amounts to $36,151.73. If you refinance again, it will only become worse.
There is a better way. United First Financial came up with it, and the Money Merge Account program is the answer. As with the closing costs above, the cost of the program can also be paid for by your bank, but instead of generating a loss of maybe $36,151, the small investment used to refinance and generate that loss could instead be used to pay off the $200,000 mortgage in about 15 years and save maybe $90,000 in interest. Furthermore, 180 payments do not have to be made, which means $215,838 does not have to go to payments and can be spent on other things.
Does it pay for you to refinance your house? Should you? Based on the figures above, no, it doesn’t. Clearly the better choice is the Money Merge Account program from United First Financial. Of course, results will vary. But doesn’t it make sense to look at the possibilities of what United First Financial and the Money Merge Account program can do for you? Contact me for your FREE, no obligation analysis.
Categories: Personal Finance, Savings tips |
Tags: account, financial, first, house, merge, money, refinance, should, united | No Comments
July 25th, 2009
In this morning’s paper was a letter to the editor railing against the proposed health care reforms because “when the state pays for health care, the state gets to make decisions about who gets health care, and how much.” The author compared the current proposals to those of the Nazis and the Communists. Do I detect a trend here? Is this a Republican, Conservative, right-wing talking point?
First, I would like to call attention to the fact that the above mentioned health programs were run by RIGHT-WING nut jobs, dictators and despots. These are the same type of people who think it’s perfectly okay to wiretap their citizens and imprison them indefinitely without charges.
This is what drives me crazy about the Republican party and the conservative movement. Given my druthers I would love to run scans on many of their brains to try to gain an understanding of how their twisted thinking originates. But of course, that is something the Right would command, and the Left would never seriously consider.
The same people who urged government involvement in the very private matter of the Terry Schiavo case are the same ones who mischaracterize the current plan as a government plot to intrude in our health care decisions. Seriously, what cluster of brain cells is firing?
My insurance company has the absolute right to determine what care I get and how much of it I am entitled to. They also determine what medicines I can be prescribed and what tests I get. You may have heard stories of women giving birth and being forced to leave the hospital in a matter of hours. And how about the women forced to leave the hospital after a mastectomy and dragging their drainage tubes behind them? Kicking people out of hospitals early is not the decision of the hospital or the physician. It’s purely at the behest of insurance companies.
My daughter was delivered via caesarian section. I moved and changed insurance companies a few years later and guess what was specifically excluded from that new policy for several years? Anything that might have resulted from or could possibly be blamed on that c-section.
My mother is on Medicare. Her government run health care program is exquisite. No one tells her what doctors to see or what level of care is permitted. Those decisions are made purely by my mother and her providers.
My husband served in the military many years ago and has VA. His government run health care is terrific. His doctors spend considerable time with him, and with their sophisticated record-keeping nothing is missed.
The utter failure in our current health care system is the insurance-based part of it. It doesn’t work. It’s overpriced. It’s inefficient. It’s corrupt. It’s flat out cruel.
What the hell are these Conservative and Republican idiots talking about? Their arguments are pure “1984.” The rabbit hole. Lunacy.
If for no other reason than to actually force the insurance companies to compete, we need the public option.
Therefore, in the interest of what the editorial page letter writer referred to as the “collective,” I demand CT scans for all of those on the right who are making these specious arguments against government involvement. (And I also want to see their emails, bank records, telephone bills, employment histories, etc.)
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P.S. I talk to many people burdened with debt caused by this health care mess. They are being hammered twice — by their health insurance (or lack of it) and the financial crisis. If this describes you, I might be able to help. Please visit http://www.debt2zip.com
Categories: Commentary, Government, Personal Finance, Politics, Taxes, Uncategorized |
Tags: conservative, debt2zip, health, health care reform, insurance, Republican, Republicans, right wing | 4 Comments
January 11th, 2009
Some things just seem to require a little common sense, and fixing the mortgage crisis is one of them. I heard a story on National Public Radio a couple of weeks ago. I haven’t heard anything about the concept since, and it really requires more discussion.
According to an article in Wikipedia on the subprime mortgage crisis, “As of August 2008, 9.2% of all mortgages outstanding were either delinquent or in foreclosure.” (The source is the Mortgage Bankers Association website, http://www.mbaa.org/NewsandMedia/PressCenter/64769.htm.) Think about this for a second. Almost 10% of all mortgages are in trouble.
- Would you buy a toy for your child if there was a 10% chance the toy contains lead?
- Would you buy an electrical appliance if there was a 10% chance that faulty wiring will cause a fire?
- Would you buy a car from a manufacturer whose air bags fail 10% of the time?
Yet this is precisely what we’re being asked to do when we buy today’s mortgage “products.” (And that is the term lenders use.)
Current mortgage regulations date from the days when borrowers and lenders negotiated loan terms face to face. Those days are long gone, and yet the laws assume borrowers and lenders are on an equal footing. Not long ago I sat next to clients who were purchasing a home. We were at the closing, and they were seeing their loan documents for the first time. (Lenders now fax the documents to the closing attorney or escrow at the last possible moment.) They had gotten their loan through one of those Internet companies that promise cheap rates, and the terms of the loan were not what they had been told. Not even close. They called the 800 number and argued with the clerk at the other end. In the end they were told that if they didn’t like the loan they could refinance at a future date or they could go somewhere else.
Here’s the problem –
- You can’t get a new loan at the drop of a hat. It would probably take a minimum of 3-5 days under the best of circumstances. The property will need to be re-appraised, and the buyer would have to pay out more money.
- The seller may not be willing or able to extend the contract, and there’s no provision in a typical real estate contract for this type of circumstance.
- The buyer has made commitments. In this case, the buyers’ moving van was parked in the driveway of the new house. The buyer would have to pay storage for their household goods and incur the expense of staying somewhere else temporarily. Depending on how prudently they packed, they might have things they badly need for personal or business reasons buried in a box at the back of the truck.
Negotiating a mortgage loan is a far cry from negotiating face to face, and it can be a far cry from fair and ethical behavior from entities that hold all the power. If we’ve learned nothing from all the various corporate scandals that have come our way lately, it’s that we can’t count on large corporations to be fair and ethical with their customers.
The speaker on NPR had a brilliant solution, and I sure wish I’d gotten her name. Here’s how to fix the mortgage crisis once and for all: Mortgage lenders refer to the loans they make as “products,” and it’s true. They are. As such they should be overseen by the Consumer Product Safety Commission. Forget the Treasury Department and the SEC and all those agencies who haven’t lifted a finger to protect consumers from these mortgage products. Let’s put oversight where it belongs — the Consumer Product Safety Commission. And let’s give them the budget and the inspectors they need to get the job done.
Lastly, here’s my little self-promotion — if you want to take power back from lenders who clearly don’t care about you or your interests, please visit my website: United First Financial. I can help you get out from under. Instead of contributing to what is probably the largest building in your town, I can help you keep your hard-earned money for yourself and your family. Basically, you can stick it to them by cutting down on their income. Perfect.
Categories: Commentary, Economy, Government, Personal Finance, Taxes, Uncategorized |
Tags: commission, consumer product, crisis, financial, first, fix, Mortgage, safety, united | 2 Comments
October 8th, 2008
We all know people who have known what they wanted to be when they grew up from the time they were in diapers. It’s nauseating, but yes, they are out there. Others of us bumble around and with luck figure it out at some point in college. I am really sorry for the people who learn they detest bodily fluids right after finishing medical school. What a colossal waste of time and money.
And then there are those of us who get it together in our fifties. I finally figured it out. For decades I’ve thought of myself as being a Renaissance Woman, interested in anything and everything and never able to make up my mind what I want to be when I grow up. Like an ADD sufferer, and with no disrespect intended, I tend to ricochet from topic to topic. But unlike people with ADD, I have never had any difficulty focusing and giving things my complete attention. Quite the contrary. I immerse myself in a subject until I have my fill or I am pulled away by circumstances. The trouble has been that the end of the class never coincides with my fill of the subject. I want to know more.
When we moved to North Carolina, I was ready to switch careers. Instead of the real estate I’d been practicing for 20+ years, I wanted to get into database design. I enrolled in classes at Wake Technical Community College, racked up a nice 4.0 average, and ultimately learned that the world of programming and database design isn’t particularly open to women over forty. Sigh. Database design is now my therapy, and I’ve designed and am currently using a very nice little property management program.
After my forties’ adventure with changing careers, I went back to class, became licensed to practice real estate in North Carolina, and went back to what I knew. Besides real estate sales, we manage a few properties for other people, and that is where my nice little property management database program comes into play.
Okay, I’m now in my fifties, and at last I know what I want to be when I grow up. Over the years I’ve learned much about real estate and mortgages and consumer loans and many things that affect people’s finances. After decades of working with tenants and their reasons for being late with the rent, I’ve learned a thing or two about what gets people into financial trouble. I can’t count the number of hours I’ve spent telling people that it’s really a good idea to pay first for the roof over their heads and only much later for clothing, movies and restaurants.
It is because of this that I know what a great product the Money Merge Account system is. With my knowledge of programming and finance, I know that United First Financial has come up with one heck of a concept. The idea itself isn’t complicated, but the mechanics behind it are. I wish I’d thought of it myself.
So now, as I slowly approach middle age (we baby boomers will not be going quietly), I have found something I really want to spend my life doing. What better way to spend my time than to help people to become debt free? What better use of my time than to help people realize their dreams when they are no longer burdened by monthly payments? What better way for me to help people work through their financial problems? All of these things are possible with the Money Merge Account system.
If you’d like to learn more, please click here: United First Financial
Categories: Commentary, Personal Finance |
Tags: Debt, debt free, finance, medical, Money Merge Account, Mortgage, North Carolina, real estate, United First Financial | Comments Off
Typically people refinance every 5 to 7 years. If you have had a $200,000 loan at 6% for 5 years, you will have paid down $13,891.29 in principal. That doesn’t sound bad, does it? But wait. You also will have paid $58,054.78 in interest. You will have paid 4 times as much interest as you paid in principal. Every month you pay on your mortgage, you pay a little more principal and a little less interest. It will take 18 years and 7 months (223 payments) for the principal part of the payment to finally exceed 50% of the total payment. That means it will take 223 payments before you are finally paying more principal every month than you are interest. If you refinance after 5 years, your new loan will start all over again, and your initial payments will again be weighted toward paying interest.
