This will be the fourth mortgage since we bought the house 5 years ago. We went from 6.25% to 4.875% to 4.125% to 3%. If I had paid closing costs on those loans I would not have recouped them before refinancing again. Rates are as likely to go down again as they are to go up. I will refinance again if I can do it at 2.75% or less since I have no costs to recoup. The $10,000 or so that I haven’t paid in costs over the last five years is in my pocket and my rate is much lower than yours. I don’t see how you can argue that your approach beats mine.
When you get a rate quote from Amerisave it shows several options of rates and fees. If the “All Lender Fees & Points” column is a negative number, it means that they will give you a credit in return for taking the higher rate. The credit offsets your closing costs.
I saw that. There was still 2k left after the credit they offered. Maybe that’s all I qualify for based on my loan amount and the value of my condo.
I didn’t really argue that my approach was better, just different. I even stated that you may come out ahead if you move (read: refi) soon. The only way to be sure would be to take the difference between the two interest rates (with and without closing costs) and apply that to the life of the loan between the two refi’s. The amount of interest that would accrue from that rate will come to one of three numbers: Higher then closing costs, break even or lower then closing costs. If it’s lower, you’re ahead of the game.
It’s a bit similar to playing with an ARM where and having an interest only payment. Some people see this great 200K house and think they struck gold when they find a lender that offers them a mortgage with a $900 payment (instead of, say, $1500). But they don’t realize or don’t care that they aren’t actually paying anything down on the house. Those can, however, be advantageous for people that are planning to move in a year or two and are going to put the money away or people that are responsible enough to pay well over the minimum each month but want the flexibility to pay a smaller amount from time to time when they need the extra cash.
I think sometimes we have to remember it’s not about what’s cheapest it’s about what works best for a given person.
You are paying 4.95% for your mortgage. You will save money by refinancing whether you pay closing costs or not, with one exception - you will not save money if you pay closing costs and then refinance or otherwise pay off the loan before recouping the costs. There are two ways to win and two ways to lose:
Win:
- Refinance, pay closing costs, hold loan long enough to recoup costs
- Refinance, pay no closing costs
Lose:
- Don’t refinance
- Refinance, pay closing costs, pay off loan before recouping costs
Option 2 is beats everything except option 1, but it does it without taking the risk inherent in option 1. Stated another way, option 2 is a hedge against the risk of option 1. Option 2 requires no money out of pocket and you retain the ability to refinance again immediately if rates fall further.
Let’s say that you are eligible for the same loan I am but you pay closing costs. You get a rate of 2.75% and mine is 3%. If rates fall again and I am eligible for a no-closing-cost loan at 2.75% I can refinance without worrying about whether I recouped the costs from the first loan. You can refinance to 2.5%, but any costs you haven’t recouped are lost and you will incur a new set of costs with a much longer time to recoup (since the difference in rates is so small). You only win if, by sheer luck, you refinance when rates have hit their bottom. Odds are that you won’t be that lucky. Option 2 takes away all of your risk, and taking away risk is often worth paying for.
Makes sense. But I shudder to think about refinancing that often.
I have all my important documents in electronic form, so it’s easy. They ask for documentation, I grab the PDF files, zip them up, and email them to the loan processor. The closing agent comes to my house. The most inconvenience I incur is when I have to go to the post office to mail back a big envelope full of signed disclosures, and some lenders don’t even require that (Amerisave does it all online, but the lender I’m working with this time still sends a huge stack of papers to be signed). I’d guess that I spend about three hours total each time I refinance, including the time spent signing paper at the closing.
Just got off the phone with my mortgage person. My payment would come down by about a hundred dollars but the closing costs are about $1300 and the appraisal is $400 (so 17 months before it pays for itself). The problem is that as of my last appraisal (just over two years ago) I’ve got over 20% equity in the house, but it’s close enough that a new appraisal could put me under the 20% mark which would mean PMI and that would make everything a wash. If I scrapped the deal at that point I’d be out the $400 fee for the appraisal.
I’m probably safe, I think I’m far enough over the 20% mark to be okay, but even so, 17 months is a long time to wait for a return.
I think I’ll sit tight for a while. I think.
Also, just for kicks, I checked out the local credit union. Same rates, same closing costs.
Okay, so as I said above, I think I’m going to table the refi thing for now. A $400 gamble is a bit much to risk for something that’s going to take 17 months to pay off.
So, that brings me to my next question. Do I stick with what I was doing before? Be aggressive with the LOC and get it paid off in the next, 3-5 years and then move those payments over to the mortgage or…back off on the LOC now, be aggressive on the mortgage for a year or so and look into refinancing then?
Actually, I don’t think that would be a good idea. Checking an online calculator, if I refi’d today, it would go down by $100, if I paid it down by $2500 and refi’d it would go down by $120. I’m using $2500 as a conservative ‘aggressive’ amount to pay down over the next year. Also, that’s assuming I’d get the same rate in a year and my house would still appraise at a high enough value to not need PMI.
I think, for now, I’m going to stick with my plan for WRT my house. I think it’s a sound idea. But I will make a mental note to keep an eye on the interest rates. One thing I think may be a problem is that as interest rates drop more people buy houses which creates a buyers market which drives down the cost of houses which means my house will appraise at a lower rate and since, as I’ve said before I’m right on the cusp of that 80% equity mark it may always prove to be an issue. Perhaps it’s not a terrible idea to put a few extra dollars towards the mortgage each month. Even an extra $85 will give me an extra $1000+ of equity in a year and that might make a difference.
Also, and I might just need to sit there with a paper and pencil and work out the math, but maybe someone has the answer, is it worth refi’ing at a higher rate if it means getting a lower payment? That is, let’s say in 5 years, the rate is 6.5% but I’ve paid down enough equity that my payment will be $400 less. Is that worth it since I’m so responsible and will continue to make the same payment as I was making before or does it make more sense to just leave it alone? On the one hand if you leave it alone, more money is going towards principle since the rate is lower, OTOH, if you refi for a lower payment with a higher rate and make the same payment less is going towards principle but you have the flexibility to access more cash each month (the extra $400) if you want or need it? For example I budget a rather large amount for my HELOC each month, but if have a big CC month, I just back off on HELOC a bit for the month if I need to.
I get the feeling this is going to come down to a matter of opinion type thing. I assume it probably makes more financial sense to stick with the lower rate, but if you need the cash it makes more sense to refi with the higher rate.
Okay, enough of that for the moment. Up next investing. Gimme some time to put my thoughts together then y’all can tell me things and stuff about it.
So, I’m looking at what Machine Elf was saying earlier in the thread about, wait, let me go find it
You also specifically mentioned VFINX.
This made sense to me and I decided to look at the Index fund that I had and see how it performed over something longer then, say, a week or three. Over the last 1, 3 and 10 years it’s done okay. Over the last 5 years it basically broke even. VFINX, was basically exactly the same. Both of them tanked in 2009. Then I remember watching the news and hearing something or other about the DJ being down some huge amount day after day after day. It seems they’re just on they’re way back up now.
The reason I didn’t invest in anything I’d heard of (my index fund is ACIVX) is that something like VFINX has a $3000 minimum initial investment as well as fees and a commission. The one I picked had no fees, a $4 commission and I think it had a $200 minimum.
I’m gonna keep looking at this stuff, but I’m not quite ready to toss $3000 at one fund, not yet anyways.
Lower interest rates may prompt more people to buy, increasing demand for housing stock, which tends to push prices upwards. That’s part of why interest rates are being kept so low - to try to stimulate people and businesses to borrow money and invest it (in houses for people, in expanding their businesses for business owners).
If you refinance at a higher rate you will pay more interest. The only reason to do so is to increase cash flow. If you can make your mortgage payment every month, refinancing to a higher rate will just cost you more money and will gain you nothing.
If I understood the question “is it worth refi’ing at a higher rate if it means getting a lower payment” then the only reason I could see it making sense in the short term is that you’re extending your payment term.
Say you’re 10 years into a loan at 5% and paying a thousand a month, you could refinance into a new 30 year loan at 5.5% with a payment of 800 a month. Yeah, you’re saving 200 right now - but in the long run paying a LOT more (even if you continue to pay 1000 a month). I haven’t crunched the numbers, but I definitely wouldn’t refinance to a higher rate under any circumstances, unless you were going from a variable to a fixed term.
I think the MOST savings you should have built up is 6 months, and frankly for a great many people nowdays, even that is not feasible. 12 is IMO overkill and would better be served throwing into IRAs etc.
Bottom line IMO:
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ensure you have “diversity” - a mix of large cap, small cap, sprinkled with some specialty/overseas
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that said, try to keep it as simple as reasonably possible; too many funds/companies/etc and it becomes harder and more of a pain to manage and keep track of
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the younger you are, the more time you have to invest and IMO should be somewhat more aggressive…if older, start trending to more conservative (time is HUGE - it can be your best friend or worst ally)
g/l
It’s a rule of thumb and like all rules of thumb, needs to be adjusted for the circumstances. If you have a two income household but can live pretty easily off the smaller income (like our house) you need less, the chance my husband and I would both be incomeless are smaller. If you can and will cut expenses quickly, you need less. If you work in a high demand field you need less. But if you work in a dying industry, if getting laid off is going to mean a long time out of work, and travel expenses to interview, and whe you get a job, you are likely to have to move for it, if you have children involved and one income, if you are unwilling or unable to cut expenses if you face a job loss…you need more than six months. If you aren’t covered by unemployment, make sure you have more set aside. If you never need it, it becomes money to be spent in retirement. The nice thing about earmarked money is it never needs to be used for what it was set aside for, although sometimes there are tax penalties for certain vehicles.
Also, eventually (if you are lucky) you’ve maxed out IRA and 401k contributions and even 529 contributions and you need more traditional investment vehicles for all that extra money. That’s really when you start investing rather than saving, but most people with kids and college to pay for trying to live a middle class lifestyle on a middle class income aren’t going to get there until the last college bill is paid.
Just a quick update. I’m still playing around with the market. I have a few stocks and a few index funds. The index funds are steadily creeping up, the stocks…not so much. I know I should stay away from the individual stocks, but they’re still fun to watch and since I’m patient and not impulsive (with this kind of thing) it’s fun to hit refresh every 5 minutes and see what’s going on.
I just opened a Roth IRA with ShareBuilder and I’m trying to figure out exactly what I should do with it.* I have two index funds and I’m wondering if I should just take the one that’s been doing really well and start with that. Right now I put $50 a week into my savings. I’m thinking maybe I’ll funnel one of those payments each month over to the IRA and start building up that index fund (after I fund the initial $250 to buy in). Also, I should note that the index fund I’m talking about has no commission so I can trade it all I want and not get dinged for doing it.
A few things, just to remind everyone where I stand. I’m 32 years old. I have no credit card debt. The only things I owe money on, other then the usual utilities/groceries/gas are my car and my mortgage/HELOC. The HELOC is being paid down very aggressively and should, if everything remains at status quo, be paid off 2 years or so. At that point the money that was going towards that (again, if everything is more or less status quo) will be split between various savings accounts, extra principal payments on my regular mortgage (I’m paying the minimum right now in order to knock down the HELOC) and, lets face it, probably a few toys for myself…but I’ll be freeing up a pretty significant amount of my monthly income when that’s paid off.
*I really wish, somewhere on that account, it would say Roth IRA just so I know I opened it properly. I think I’m going to email them and make sure I did it right. I mean, I’m 99% sure I did it correctly, but it looks identical to my regular investing account.
If you had little or no investments over the past five years, then you probably weren’t paying much attention to the stock market. Short version is that between summer 2007 and spring 2009, everything took a nosedive. You’d be hard-pressed to find an equity investment (stocks or mutual funds) that didn’t lose 50-60 percent of its peak value during that time. Anybody who panicked and pulled their money out when the market was plummeting basically locked in their losses; anybody who kept their money in (or went so far as to put money in when the market was down) has recovered their losses by and may even be seeing a return on their investment by now. This underscores what I wrote upthread: don’t worry about short-term market fluctuations (1-5 yrs) unto you start to get close to the time when you will need the money from your investment.
Your ACIVX fund is basically the same thing as VFINX: a passively-managed index fund that tracks the S&P500 stock index. Both should deliver virtually identical performance. VFINX has a lower expense ratio (0.17%, compared to 0.49% for ACIVX), but you’re right, VFINX charges an annual maintenance fee of $20 for accounts under $10K; that’s comparable to jacking up the expense ratio by 0.2-2%, depending on whether your investment is closer to $1K or closer to $10K. So as far as choosing between VFINX and ACIVX, you’re doing the right thing for now. If your ACIVX investment exceeds $10K, you might consider transferring it to VFINX; at that level there won’t be any annual service fee, and you’ll take advantage of the lower expense ratio there.
Can someone take a look at this prospectus? It’s for the index fund that I have that’s been doing really well, but I’m wondering if I’m going to get hit with a $25+0.35% fee at some point. ShareBuilder calls all of their mutual funds No-Load Funds. Are those fees considered the load? For some reason when I first bought it, I was under the impression that part of the deal that a mutual fund had when working with Share Builder was that they had to be No Load.
Looking around I’m a bit confused as to if they’re all no-load, if they’re no load if you set up an automatic investment plan…or if I’m just confused about the whole load situation.
One of these days I’ll get it all. But I’ll get it all faster this way, I think, learning as I need to, rather then sitting down with a book and getting overwhelmed with things I don’t need to know.
Also, as it turns out, I did set that Roth IRA up wrong, so I got that straightened out today and now I just have to figure out what to do with it.
Have you gotten your daughter’s college fund into something better than a savings account? That loses against inflation, and college costs are rising a lot more than inflation.
I used to own stocks. I made some money on Google, but also lost money in the Bubble. I no longer have any. You have no way of beating institutional investors in reacting to changes that affect the price of your stocks. If you are betting on long range growth, index funds are much safer.
It might be a good idea to go and interview some financial planners. I did when I wasn’t much older than you specifically to look at some good investments for my daughter’s college. I found one I really liked, and it came in very handy when I got a lot of money from a buyout. Over the last 25 years it has been pretty good, and I have someone I trust to go to with questions. For instance, he told me that Google at 168 was not overpriced. There are some types of investments that might meet your needs later better than index funds, and getting a line on them is good.
I don’t know about you, but I don’t have the time to manage my money on a day to day basis, which helped me get through the crash in one piece.
When I originally set up my daughter’s savings account I promised myself I wouldn’t touch it. No matter what was going on in my life, any money that went into that account, wouldn’t leave it unless it was for a college bill for her. A few years later I realized that was a bit silly and back off a bit and told myself that I would, in fact, touch it if I was ever in danger of losing my house or car. Basically, even though it’s her college money, until my emergency fund is built up a bit higher, it’s still (more or less) part of my double secret back up money.
This is what I’m worried about. Sure, a savings account might not keep up with inflation, but at least I can’t lose the principle. I hate to have another market crash right as she’s getting ready for college and all my hard work is gone. My only hope would be that I would have enough other money that I could pay for it with that and/or loans and ride it out.
What about I Bonds? If I’m reading it correctly, they gain interest (currently 2.2%..maybe, another page on the site doesn’t support this) plus they’re designed to protect you from inflation. Even if it’s only 1.1%, that’s still better then the .8% I’m getting at ING and it’s only slightly less liquid.
Okay, so I’ve done a ton of reading about IRAs (and investing in general) and found that everyone has their own opinions and they really don’t all agree. Some people say you should fill it up with EFTs, some suggest that an IRA is the only place you should ever have a mutual fund (because of the tax benefits). Some say to invest a little each month while others say it’s best to just dump it all in at once.
I went though Sharebuilders Portfolio Builder. All their various portfolios for everything from conservative to aggressive and from $50 per month to $5000 per month (which I suppose you could only do once) are filled with nothing but EFTs. I found one package I liked but it had 6 funds in it. That would cost me $24 a month in transaction fees or $12 a month if I switch to their Advantage plan. Even I did get the advantage plan, I was worried that I wouldn’t have enough invested (for a while anyways) for the growth to overcome the $12 per month, especially since the portfolio has been showing a negative return for the last few months.
To make a very long story short, I’m putting $100 into each of three EFTs that I picked out myself (based on a few of the portfolios that I liked) and $700 into a mutual fund. My original goal was to invest $1000 per year and this way, not only is all the money in the account now, but, assuming I don’t shift anything around, I did it for $12 in transaction fees instead of $12 per month.
If anyone is interested, or wants to tell me that I did a bad job picking my funds, here they are…
$700 ARDVX AM CNT LIVESTRONG 2040
$100 IWF RUSSELL 1000 GROWTH (ISHARES)
$100 SPY S&P 500 INDEX SPDR
$100 TIP ISHARES BARCLAYS TIPS BOND FND
I think I may even get these transaction fees waived due to a promo code I found, but I’m not sure. Also, I do have some time to change my mind. ARDVX will go though on Tuesday, the other three will go through a week from Tuesday.
Also, what do we think about I Bonds for a college savings account? Like I said earlier, I’m just not willing to risk the principle with that money. Maybe even just putting in, say, half of it and keep the other half in my savings account?