Our rate of savings is set to increase in March! 2013 has gotten off to a stagnant beginning as far as the savings go but this is a situation that is set to change soon. We have to save as much of our income as we can for the next few years and being smart with our mortgage is a good way to extract some savings.
Right now, we are spending too much money on an interest only home loan so I spent all of this past week doggedly persistent in my search for a lender who will refinance this horrible mortgage. Refinancing really is my main financial goal for 2013 and the sooner the better.
I believe success to be ours! We do not qualify for a conventional loan because of our BK and foreclosures from over 3 years ago but we do quality for FHA. Ergo, we applied for a 15 year FHA mortgage and were accepted by a lender in town. Escrow was opened on Thursday and the first round of signed paperwork has already been returned yesterday to the escrow officer. Our monthly savings will come to $300, and would've been closer to $600 had we gone the 30 year route, but we just didn't see the logic in signing up for another 30 year term. We want to get this thing paid off or at least paid down.
Our $300 monthly savings with the new 15 year term will now cover the homeowners insurance and the property tax bills too so, basically, we will still be paying $900 each month, as with the horrible mortgage we already have, but that $900 under the new mortgage will now cover the principal, interest, taxes and insurance AND will only be over 15 years as opposed to 30. We are presently paying $900 a month on an interest only mortgage with the property taxes and insurance tacking on an additional $300 for a total monthly payment of $1200. Not a wise use of our money so ... we are definitely happier with the new deal.
Looking at the amortization schedule, the 15 year loan pays down quite quickly with a significant amount of the monthly payment going towards the principal. This is a huge change from the 30 year amortization, in which the bulk of the earliest payments on the mortgage go towards the interest. We calculated that just $100 extra towards the new mortgage each month will result in the mortgage being paid off in 12.5 years and a prepayment of $200 will earn us a paid off mortgage in just over 10 years. Amazing. Why the heck didn't we pay attention to this before now?? Well, I already know the answer to that. We were too busy spending, vacationing and consuming crap.
One thing that I paid careful attention to were the fees for acquiring this new mortgage. Our loan officer may be a friendly helpful type but let's just say that she is not above trying to stiff me on bogus junk fees. I have already caught her out three times in trying to shaft me with BS junk fees .... and I called her on it too. I was able to get some of the lender fees cancelled and one of my friends from the past, who works at an escrow company, allowed me to negotiate a flat fee escrow charge which saved me a big chunk of change. I still have to pay fees to the lender that I know full well to be junk fees (grrr) but I guess I have to allow them to make a bit of money from this deal. I already know that the lender is making money off us on the front end (interest rate mark up .75%) so it galls me to know that the lender is making money off the back end too ... 'processing fees', 'document fees', 'underwriting fees' and so on ...... but, hey, there's no such thing as a free lunch, eh? I'm not my own mortgage broker at this point and so I have to play the sketch game. I've talked the fees down as much as I am able to without pissing someone off and losing the loan.
I'm really looking forward to watching our mortgage balance go down with every payment each month as opposed to staying the same month after month. Our present interest-only mortgage is a loan which must be banished and, bar any unforeseen glitch, that is the intention, hopefully within the next 3 weeks.
Next up: Appraisal. We paid the $500 fee for that and are awaiting the call from the appraiser dude to set up an appointment. Once that's done and in at the expected valuation, it's a hop, skip and a jump to paying off our old lender and taking up with the new.
One thing I will say. We are writing our costs into the loan in order to keep our cash liquid. We were going to bring $10k to escrow to pay all costs and pay the balance down a little but now we have decided to refinance at $90k and to make extra payments each month. In no time, we should be past the current $85k mark while leaving our savings untouched. I personally don't think it would be a good idea at this stage to put thousands of dollars into paying down a mortgage for the simple reason that we have too much going on with regards to college expenses and I want to make sure that we have plenty of financial cushion to get the kids through the final 2 years in college, which will begin in September 2013.
On a quest to bounce back from job and financial loss. One of my biggest dreams in life is to own my home free and clear of any and all bank loans. To no longer be a slave to the lender would be GREAT!