| Trying to decide if we should refinance (again) |
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kpowell
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| Trying to decide if we should refinance (again) |
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hi Im new here. Recently I started a new job (yay!) but before that, we were getting to the point where we wanted to make as many reductions as possible in our financial picture. So one of the things we considered was refinancing. A little history-we refinanced towards the beginning of 2009, to restructure our debt (rolled it into our mortgage) and got an FHA 30 yr 5% loan. So now we are 26 years and 8 months into it. I heard about this streamline FHA refinance loan program before I got my job, so I checked with our bank (BOA) and decided to go through with it. It wasn't a huge deduction in interest, it would go to 4.25%, but the savings of over $180 sounded appealing. Now that I've got a job, we can afford to keep our mortgage as is, I'm just wondering what your opinion is as far as whether we should go through with it or keep what we have. We already had the bank draw up the paperwork, and signed everything, but we would have to send it all to them because there is no BOA where we live.
I just told the bank official we had been working with that we are considering not doing it after all. She wants to hear by next week what we plan on doing.
I need your professional opinions on whether or not to go through with it or just stick with what we have. By the way, the closing costs of $1500 would be rolled into the mortgage. I heard Susie Orman recently say you would take the total closing costs and divide the savings per month into it to get the total # of months that you would have to pay to make it worth your while.
Ok, I'll wait to hear your thoughts, opinions and suggestions. Thank you!
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Fri Aug 03, 2012 3:24 pm |
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littleroc02us
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So are you saying that you'll save $180 a month and paying $1500 in closing costs. So you need to stay in the home for 8 months to make it worth while to pay off the costs. The problem that I see here is that you keep putting your mortgages back to 30 years never gaining ground in the long term as for paying off the home before retirement. Personally I wouldn't want a mortgage in retirement because why would anyone want to worry about making that payment each month? Retirement is for relaxing and doing whatever you want with minimal stress.
Risk comes from not knowing what you're doing. (Warren Buffet)
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Fri Aug 03, 2012 3:32 pm |
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oldguy
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I would do it, The $180/m savings ($2160/yr) will add up to a huge savings account 30 yrs from now, especially if you invest it in something that grows like an index fund. (I do this with each of our rnetal houses, one house is on it's 4th mortgage in 32 years - it has made a lot of money for us). And yes, roll the $1500 into the loan - by retaining th euse of your $1500 now you can also invest that anbd grow it.
Warning: It takes some discipline to use thsi method - it you blow the $180/m on Starbucks and new car payments then it will gone, no huge fund.
But there is only about 1 Stabucks in Alaska, so you'll be fine.  Have you ever been to Chicken? We went thru there a couple years ago, fun.
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Sat Aug 04, 2012 1:14 pm |
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kpowell
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Hi guys, thanks! I will address each reply that I got as best I can. First off let me say, I'm no financial guru, I just need help in trying to make the best decision for us. We have several situations going on here, so I should mention that we have about $38k in cc debt, (please don't judge-I was unemployed for a while, but just recently found a job) and $24,778 total in vehicle loans. Also, wanted to mention that we plan on living in this house for about 10 years, until my husband retires. We are considering selling our older RV when it's paid off in a few years and getting something newer that we will be able to live in while touring the U.S. after his retirement. Not sure if we want to sell this house or hang on to it in 10 yrs when he's ready to retire. The value has gone down, so we are close to being underwater, so that's another factor to consider. If we stick with our current mortgage, we will have about 16.8 years to pay on it in 10 years, if we start all over @ 30 now, we will have 20 left. I am not sure that it's a good decision to keep it. We bought it because it was close to the kids school, good location, reasonable price at the time, but definately not a "dream" home.
Right now, we have our two kids living with us, they both have jobs, one is going into her junior year in college, she lives at home to save the high costs of dorm living, and has been getting scholarships to help her pay tuition/books, and she pays the rest with her own income from her job! We are extremely proud of her. Our son will be a senior in high school, doesn't have definate plans for after high school yet, but will figure it out this year. He is also working full time, just started this summer, but will have to cut his hours way back soon when school starts.
So to answer the "oldguy" reply, if we do refinance and end up with the $180 savings, instead of being able to invest it, we would have to throw it towards our outstanding debt to make it go away faster. I decided I want to put it towards the card with the smallest balance first, just to see something paid down faster, then put the $100 pmnt towards the next card, etc. By the way, I don't know when you were last here, but a lot of the grocery stores have Starbucks in them, and we are getting a new stand alone Starbucks in
Wasilla soon! I know that Anchorage has quite a few also...besides, we have a lot of homegrown ones that are much better! Luckily, I don't drink coffee, so therefore don't blow our $$ on the java. My husband loves coffee, but makes his own at home. I may have been to Chicken, but can't remember because it's been a while since we were on the AL-Can highway.
Coaster, unlike your situation we don't necessarily want to or plan on living here forever, although Alaska will always be my home, I was born and raised here! It's a tough decision, truthfully. Who knows what we will want to do in 10 years? Right now the plan is to tour the U.S. in an RV, and maybe become full time rvers? Who knows what the economy will be like, if the housing prices will continue to drop, I know that ours has dropped about $18k in the last few years, which is disconcerting. So the other question I thought about it...maybe to sell it after the kids move out and just rent, especially if we can find something cheaper? The mortgage deduction has been nice though!!!
littleroc, you are right, retirement shouldn't be stressful, but if my husband retires in 8-10 years like he wants to, the reality is, we are going to have a mortgage payment up until then, and if we were to keep the house, we would definately have a mortgage either way, whether we keep the mortgage we have now, or refinance to "save" the $180/month, is the question. My husband will have 30 years with the State in 8 years, but will most likely wait for 10 to retire.
Big decisions to make! I just wish there was a crystal ball to see what will happen, but I guess that's never going to happen, so we have to figure out what the right decision will be for us, and go from there. Thanks again!
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Sat Aug 04, 2012 8:25 pm |
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oldguy
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quote:
so I should mention that we have about $38k in cc debt, (please don't judge-I was unemployed for a while, but just recently found a job) and $24,778 total in vehicle loans. Also, wanted to mention that we plan on living in this house for about 10 years, until my husband retires. We are considering selling our older RV when it's paid off in a few years and getting something newer
Congratulations on thenew job.
Wow! Yeah, you're running yourselves into a tough situation - a big mortgage and zero equity, near-new cars with big loans, an RV loan, CC loans - and only 10 years to retirement.
I would pull in my horns for a few years and quit living quite so large. The vehicles are killing you, the cars are probably depreciating at about $8000/year, and the RV is a big expense also. Can you get some of that stuff sold to get the bleeding stopped? The car payments are probably about $6000/yr. If you could sell the cars to get free of the loans, you would have that extra $6000/yr.
But I would do the refi, you need that $180/m. And, as yyou say, roll the closing cost, you need to hang onto your cash.
As for long range planning - how about doing careful maintnenece on your present RV and keeping it - it takes a long time to rack up 200,000 miles on an RV, that would be about 20 trips to the Lower 48 - and most RVs stay reliable for about that long. One option is to sell the house at retirement and live full-time in the RV - follow the climate so that your heating and cooling costs are near zero - eg, AK in the summer, AZ in the winter. Hopefully in 10 years the house will grow some equity and you'll make some money on the sale.
Chicken is near Eagle, close to the Yukon border.
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Sat Aug 04, 2012 10:03 pm |
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kpowell
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Hello OldGuy, thanks for the pep talk & encouragement  First of all, we don't have zero equity (yet) we have about $5k, hopefully it turns around and starts increasing again! Gotta look at the bright side Secondly, you mentioned our cars, we have a 2002 truck that has over 100k miles, and is paid off that our son uses for school/work, we have a 2004 taurus that has over 108k miles, and less than 2 yrs to pay off, I use it for work, my husband who commutes an hour each way to work, uses our newest car which is a 2007 honda, which I think has 4 years to pay off, then our RV which we stretched out, so we still owe for 6 years on it. I included the RV in the $24k amt. Most likely in 10 years (if it lasts that long) we may sell our Taurus, and keep the Honda, since it has the least miles. Our daughter has a 2005 Chevy that she just cosigned with my husband, she is making the pmnts, as well as the insurance pmnts and paying for gas. She's building credit, and has to have a car for school/work. We can't sell our cars, so that is definately a no. We have already done maintenance on our RV and will continue to, it's got less than 60k on it, we only use it about 1/2 a year, otherwise it's parked for the winter. The insurance is very little on it, especially in the dormant part of the year.
We have considered selling the house in 10 years, that is a definate possibility. We had already talked about doing the RVing full time anyway, and I do like the idea of following the climate. I'm still hesitant about refinancing and starting at the 30 year mark again, although the $180 savings per month does sound attractive. We need to let her know this week!!
I appreciate your input!
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Wed Aug 08, 2012 6:43 am |
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kennygrint
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I personally think it is not ideal to refinance again since the payment seems to last until your retirement age besides we cannot be sure if your job would last for a long time or not, we can't predict what might happen
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Thu Aug 09, 2012 9:39 am |
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Wino
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KP, I have to agree with oldguy:
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I would pull in my horns for a few years and quit living quite so large.
You need to get those loans down. Right now, you owe $63K, and have very little equity to offset it. Your refi is going to cost you in equity, as well, assuming the market stays constant, although the house will most probably appreciate over the next ten years using history as our guide.
This means you need to clear $525 per month, after interest off the debts to have them gone in ten years. Note that if you do that minimum only, you'll still have no savings for retirement; perhaps the pension will be enough without savings, though.
You would most probably be forced into selling the house upon retirement given the current situation.
The good news is that you have 10 years to attack this debt. With your new job, you should avoid the temptation to get the new clothes you can now afford and NEED for work. Avoid the new car you'll NEED because of whatever rationalization will allow you to convince yourself you need it. Avoid the RV trade up... the list goes on.
Pay down the debt, then look at your options. You have right now interest payments of at least $500 per month, and I would suspect even more than that, and that is only on your credit cards and non-mortgage loans.
Just my opinion. The above is the long way of saying, "Yes, do the refi, but make sure the extra money goes to eliminating debt."
Wino
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Thu Aug 09, 2012 1:39 pm |
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oldguy
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Cars are the major depreciating asset that most families have - US families seem to fall into the trap of using cars as 'status markers' instead of transport tools.
So many families keep two near-new cars in the driveway, and upgrade them every 5 years. That depresciation is a continuous cost of about $7500/yr for an entire life of driving, maybe >50 years. It would grow into the millions if that money were allocated to investing instead of renewing cars - and that's why millionaires drive old cars.
You have 5 vehicles - that depreciation is a major burden on your family. And most of them barely have 100,000 miles - so you have 500,000 unused miles in storage. You have a few misconceptions about cars -
1. Modern cars provide about 200,000 miles of troublefree service (not the 100,000 that people seem to remember from WW2).
2. Finance charges are minimal - the interest on a $20,000 5 yr loan adds about $2000 to the cost of a car. That is small compard to the $18,000 depreciation cost.
3. Paid-for parked cars still cost a bundle in ownership costs.
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Thu Aug 09, 2012 5:45 pm |
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