Posted: May 11th, 2011 | Author: Joe | Filed under: Banking, Investing, Tips | Tags: 401(k), Banking, IRA, Refinancing | 2 Comments »
“The open palm of desire
Wants everything
It wants everything
It wants soil as soft as summer
And the strength to push like spring”
-P. Simon, Further to Fly
Spring is here (FINALLY)!
It’s been a long, cold, lonely winter here in the northeast, but the buds are present and the tulips are pushing through. That means it’s spring cleaning time – time to get our (financial) houses in order!
Here’s how I’m cleaning out the financial cobwebs in my life this spring, and using that desire to push like spring into a summer realignment of my retirement planning.
Consolidating bank accounts
Life’s been a bit crazy for me these past 7 years. Here’s what happened to me that had an effect on my finances:
- I moved to a town 2 hours away and changed jobs
- I became a homeowner for the first time
- I had a child
- I had another child
- I moved to another new town (20 minutes away) and bought a new house, to make room for an expanding family
- I had another child (that makes 3!)
- I changed jobs again
That’s pretty much it, but I think that’s enough.
All of the above changes have left me in a situation of having abandoned bank accounts strewn to the four winds. As of just last week, I had 5 bank accounts at four different banks! That’s not counting any high yield, online savings accounts at ING and HSBC either. That’s just local banks and credit unions.
Remarkably, most had little money in them and no fees associated with keeping them open, even though they were dormant. When I cleaned out the two accounts at one bank that had been dormant for more than 2 years, I had just under $50 between the two of them. I probably did them a favor by saving them the money to mail me bank statements every month stating that nothing had changed from the previous month!
Of course, all of these accounts make my book keeping a hassle too. I had piles of useless papers to be keep, or discarded securely and so many accounts in Quicken that my eyes glazed over every time I started to reconcile my banking activity. Not the thing you want to happen when maintaining your finances.
In fact, I made a sort of informal pledge to myself at the beginning of the year to simplify and streamline my financial life as much as possible. It’s already paying off. I no longer feel overwhelmed by the number of accounts and financial detritus cluttering my Quicken records. As a result, I am up to date on my banking for the first time in over a year! Go, Me!
Refinancing
Another effect of all this moving around over the past 7 years is that while I got a decent interest rate on my mortgage in 2008, rates had gone even lower since then.
Rates got so low that I initiated a refinance back in January with a local credit union, which meant yet another bank account (see above), but it was worth it.
It took about two months of processing, but I went from 6% to 4.5% – saving over $200 a month!
I was initially reluctant to refinance, but the rates just became stupid low, and it’s a bi-weekly payment schedule with no pre-payment penalties so it just made sense. Besides, it wasn’t a cash-out refinance, so I wasn’t setting the clock back on owning the home free-and-clear.
Looking ahead
“…And the strength to push like spring”
Rollover to an IRA
That covers what I’ve done so far this year, but the final result of that list of financial changes is due to the job changing: I have a dormant 401(k) plan.
I’ve written about this before. The simple problem is that for the first time in my professional life, I work at a company that offers a terrible 401(k) plan and no company match. I love the job, and it’s in a very secure sector, so it was still the right move to make. But while all this dust was settling on the new job and baby activity, I had put my retirement contributions on hold until I figured out what I wanted to do with it all.
Well, I finally figured it out, and now I need to implement it. No more dawdling, dammit!
In the next few weeks, I will be rolling over my 401(k) to a simple IRA and start implementing my rollover plan detailed here.
Next steps.
After that, I figure it’s a good time to create a new budget to account for the savings from the refinance and the new contributions to my IRA as well as the hidden costs of living in this new house with another child. But more on that another day.
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Posted: March 29th, 2010 | Author: Joe | Filed under: Real Estate, spending | Tags: Mortgages, Refinancing, Saving Money, Tips | No Comments »
A while ago, my wife and I were looking to sell our house and upgrade to a larger home. Our family was outgrowing our starter home. We had made some pretty dumb decisions when we bought that home. We had no idea what we were doing. We didn’t shop around for the best mortgage, we simply used the mortgage broker recommended by the real estate agent.
Things were different when we bought our next (and current) home. I wrote about some of the things I learned the first time around in 4 Tips For Applying For a Mortgage.
Another dumb thing we did was refinancing about a year into owning the home. We had just had our 1st baby, and had a tough time making ends meet so when the broker called and said we could cut our monthly payment by “as much as $50!”, well we jumped on that deal.
Of course, that $50 set us back a year on paying off the loan, not to mention all the extra financing involved because we rolled the refinancing cost into the new loan.
That’s not to say that refinancing your home is a bad idea. It just depends on the circumstances. A year into the loan, with not much lowering of the rate (we shaved about 0.25% off our rate) doesn’t make much sense, unless it’s trading an ARM for a fixed.
Well, back when I was shopping around for the best mortgage rate I contacted lendingtree.com. I ended up using a local bank instead, but lending tree still sends me their newsletter from time to time.
This week’s newsletter had a link to their article 4 steps to evaluate your current mortgage loan.
I thought I’d share some thoughts on their list, but feel free to read the full article on your own.
Here’s the gist of their list of when it makes sense to refinance your mortgage.
- You have an adjustable-rate mortgage (ARM)
If you have an ARM, and the terms don’t specify a prepayment penalty then it may make sense to refinance to a fixed rate loan. The prepayment penalty may be costly if you refinance, since you are in essence making one, big prepayment on the entire loan itself.
- Your current mortgage rate is considerably higher than current mortgage rates.
I interpret “considerable” to be about a percentage point or more, also known as 100 basis points or more. I just don’t think it makes good sense to lengthen your loan (which refinancing does) to save less than a percentage point. You’re better off making an extra payment or more every year. You’ll save more interest AND own your home free-and-clear sooner.
- You expect to be living in your home for another 7 years or more.
The Lending Tree article mentions doing the math to make sure you stay in the house past the point at which you break even and make up the cost of the refinance, but there are other market conditions involved. If you stay to the break even point, and then decide to sell you may still lose out if the market hasn’t risen. 7 years may not be enough time for your home to appreciate, but it seems like a point at which the odds are in your favor.
Lastly, it doesn’t always make sense to refinance your mortgage. For example, I don’t think it makes sense to refinance my mortgage because the change in rate isn’t enough and I have my own plan to pay the mortgage off sooner anyway, which will save me more in interest payments over the long run.
Whether or not you will really save money by refinancing your mortgage is more than just using a mortgage calculator to see what your new monthly payment is. You need to think big picture too, as I laid out in my explanation of why I’m not refinance my mortgage.
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Posted: November 20th, 2009 | Author: Joe | Filed under: Economy | Tags: Debt, Financing, Mortgage Rates, Refinancing | 3 Comments »
“Interest rates on 30-year fixed-rate mortgage loans fell for the third consecutive week to the lowest since the week ending May 21, while 15-year fixed rates were the lowest since our records began in 1991,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a news release.
Rates for 30 year fixed-rate mortgages fell to their lowest levels since May, according to a Freddie Mac report.
The average rate for a 30 year fixed-rate mortgage is now 4.83% (as of Nov. 19) which is a drop for last week’s already low 4.91%. To put this in perspective, the average a year ago was 6.04%.
The rate for 15 year fixed-rate mortgages also dropped. A year ago the average rate was 5.73%, and just last week it was 4.36%. As of Nov. 19, the average has fallen to 4.32%.
All of this has led to a major increase of mortgage refinancing:
more than 95% of prime borrowers who originally had an ARM selected a conventional fixed-rate mortgage in the third quarter of this year
This is good news, it means many who made the mistake of getting an ARM have realized how dangerous they are and have gotten out. It also means less ARMs to default when the rate would have reset.
Source
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Posted: November 8th, 2009 | Author: Joe | Filed under: Debt | Tags: Mortgages, Real Estate, Refinancing | 2 Comments »
A recent report released by Freddie Mac shows that half of the borrowers who refinanced their mortgage in the 3rd quarter of 2009 lowered the mortgage rate by an average of 1.1%.
This totaled a whopping $3 billion in dollars saved.
This is in large part due to The Home Ownership Affordability Refinance Program that allowed home owners with a Freddie Mac mortgage to modify the terms of their mortgages.
In perhaps the biggest change from the go-go days of cheap and easy borrowing, most of those refinancing did so without taking any equity out. In fact, 64% refinanced the same principal balance or less.
This is the most telling change since the real estate bubble. It used to be the norm that people would refinance 100% of what they were told was available and cash out an equity. This would essentially reset their mortgage payoff back to square one, and it’s a big reason why so many homeowners are underwater on their mortgage now and can’t refinance – they paid for yesterday’s lifestyle with today’s equity.
The fact that the majority (64%) are refinancing for the same or less is an indication of how this mindset has shifted since the bubble burst.
Time will tell if this trend continues, but I wouldn’t be surprised if we’ll see a generation of more conservative borrowers when it comes to mortgages.
Source: Monitor Bank Rates
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