Thursday, February 14, 2013

Refinancing/A Reflection



Debt. We all hate it. We live with it, and those of us who are lucky, manage to dig our way out of it.

I recently thought about this subject again in response to a question on lowering interest rates. The lowering of interest rates has been a Godsend to those seeking to lower their housing payments.  We bought our little house in Alameda,CA in 2000. At the time we did, we had the first mortgage at 9% and a second at 12% to avoid having to buy mortgage insurance, all on a 30 year term. We were paying close to $3000 a month (without adding in property taxes) on the house.

Now, we are at 3.67% and will finish paying off the house in 12.5 more years, paying out $1688 a month on the regular payment, and an extra $400 toward principal every month. That's the plan.

What strikes me about this, is what we were willing to pay initially to be able to buy a home in the Bay Area. Housing costs in the Bay Area are steep.  We worked a variety of jobs and took on all sorts of odd jobs. We all carried our lunch to work everyday. We lived within a budget (we still do). We often worked 12 hours a day, most days.

And I don't think we were or are alone. I think this is typical. The American dream of owning your own home is strongly ingrained in us. In all of us.

That is why the housing crisis in the U.S. was, and continues to be, such a crisis. It strikes at the heart of what we think we can aspire to--a piece of land we can stand on and call our own.

Refinancing helps. But although rates are low, it is extremely difficult to refinance now. We patiently (and sometimes not so patiently) went through a very long period of time of providing information on the tiniest details of our financial life. And the process seemed to drag on forever.  I am hopeful, that this move will help us pay the house off faster. Every month, I see the effect that the additional payments make on the overall debt, and it is encouraging.

I am concerned though, that many people will fail to refinance. This may be the last time in our lifetimes, that we will see rates this low.  The Home Affordable Refinance Program (HARP), a federal program to help people refinance who are in trouble with their mortgages, ends in December 2013.

And with the housing market starting to come back, it is unlikely that rates will remain low much longer.  And with rising housing costs, present homeowners may find that their equity in their homes has risen substantially enough to help qualify for a refinance, even if they were denied in the past.

Housing remains one of the most important investment decisions that most people make in their lifetimes. The questions of what to buy, when, for how much, and when to refinance all enter into the equation.

When looking at the question of whether to refinance, work with a broker that you know and trust. Use common sense. Ask questions, and make sure you get answers to the questions asked before you commit to anything.



13 comments:

  1. I know how important it is for many to own their own home. Sometimes at different times in our lives renting can be a lot easier and cheaper...However the American dream is very strong. Well written!!!

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    1. Thank you for finding this blog and commenting. I am trying to figure thcis blogginf world out

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  2. After my husband lost his job 5 months ago, we tried to refinance our house but were unable to. Fortunately we had enough money in our savings to float us by for awhile!

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    1. I am so sorry for your loss! Such a difficult time in so many ways! Take care !

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  3. Audrey,

    Seems like you work every breathing minute. I hope you have some time to enjoy your home. I know working and writing can keep us busy!!
    Hope things work out for you.

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    1. Hi Judy! Thank you for stopping by---We are moving through until summer when things get much slower--but for 10 months each year we are trucking!

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  4. I also am concerned that many people will miss this opportunity, but even more worried that lenders will forego the age-old wisdom of weighing the risk, and once again, lend to people who are not qualified.

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    1. Lenders are more picky right now--they want to know every detail about your income and outflow--but if you can stick with it, the benefit of a refi can be huge

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  5. I have received an onslaught of mail from lenders wanting me to refinance but when I call them and they find out I have nearly paid my home off, they are no longer interested. Just because we are nearing the end of that 30 year mortgage (purchased in 1994) doesn't mean lower payments would not be welcome.

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    1. How close are you to finishing? If you are within a year or so, there is no way they can make enough money on your loan to make it worth their while I would think!

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  6. I think many of us are having trouble staying ahead, or even afloat nowadays. Good advice on refinancing. We've done it several times.

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  8. Hi Audrey, I am having a mid-nighter. One in which I got up at 1AM and it is now 4:30. This article makes me think back to when we purchased our initial home 31 years ago. I think that we did so at around 12%. Ugh! Then when appropriate we refinanced 2 different times down to around 9%. The next refinance to obtainer a lower interest loan was actually more expensive in the end that continuing to pay the then current loan. We were lucky to be able to take out a twenty year loan and pay it off a few years early. You will chuckle at this. My husband is a bankruptcy attorney, so all was done with understanding. We wished to live in a particular neighborhood and did not wish to be house poor. I always say that we lived in the second ugliest house in our town. We were meant to stay for 10 years and ended up staying for 31.

    Man, you have lots of blogs!

    Hmm, I deleted my comment because once published I needed to correct spelling mistakes - now I cannot find them.

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