I refinanced my mortgage back in May of 2009, and it's apparently time to do so again. I'm going about things a bit differently, this time. I'm using the same mortgage broker as last time, though he's with a different company now: First Trust Mortgage. I guess I'm just listening to his advice more now.
Currently, I pay $1400/month, which includes a decent pre-payment amount, and I would currently pay off my mortgage in 230 more months. I decided to formalize that this time around and get a 20-year mortgage, which lowered my rate 0.25% compared to a new 30-year. This puts my required payment at just under $1300/month, which means I'll round up to $1300, of course. So, I'll increase my projected term by 8 months, but save $100/month and pay less in interest.
Another change is that I've opted for a no-cost refinance. Here, the lender pays my closing costs in exchange for an increased rate of 0.25%. I crunched the numbers again, and paying the costs myself for the 0.25% would save me 2 months off the end of my loan. If I refinance again, or pay it off early (likely once I get down to the last few 10,000s in principal), paying the extra money out of pocket now does me little to no good. I don't plan on refinancing again, but I didn't think rates would drop when I refinanced two years ago, yet here I am.
I'm quickly realizing that no-cost refinances don't mean there are no out-of-pocket expenses. I still have to pay the prepaid interest that accumulates between my closing date and the date of my first payment on the new loan. And I have to pay the accumulated interest on my current loan between my last payment and the closing date. I've also opted NOT to waive escrow this time. So, I'm shifting some expenses from December up to now, to the tune of roughly $3300. Add the interest payments, and it'll be more than $4000 out of pocket. It's all money I would be paying this year anyway, though.
One of the main reasons I decided to not waive escrow (I still think this is one of the stupidest terms - you aren't waiving escrow, you're paying in order to not do it) is that I was told you can often call your lender after awhile and request to waive escrow then - with no costs. They don't have to let you do it, but it sounds like they often do. I also have the spare cash now, whereas I didn't have nearly the reserves in 2009. So, I can shift my payments from December to now in order to save $500 or so. And again, if I do refinance again, that money would either be paid to waive escrow again, or I'd be back where I am now.
Another interesting tidbit came from my credit scores. Back in 2009, I averaged around 796, I'm pretty sure. Now, I'm averaging just above the top tier cutoff of 740. I'm pretty sure most of the loss is from getting a credit card back in December that I've been regularly putting large balances on and then paying off again. The combination of the recent credit application, high utilization on that card, and some randomly high activity on a credit card of my parents' that they included me on long ago in order to build my credit history, has resulted in a slight ding on my credit. It still seems to be OK, since I'm over 740 on all three. However, it would be quite annoying to have problems because of these otherwise irrelevant credit score fluctuations. I'll find out within the month!
Showing posts with label credit card. Show all posts
Showing posts with label credit card. Show all posts
Wednesday, August 24, 2011
Wednesday, June 16, 2010
Old Technology Hurts Everyone
This week, I was shown an example of how some companies refusing to join the 21st century can impact other companies. WaterOne and the City of Olathe each handle a part of my water, sewer, and trash bills. As part of my plan to close my Merrill Lynch brokerage and checking accounts, I have been transferring my various bill payments to my credit card or my Bank of America checking account, depending on whether they offer free credit card payments or not.
Now, KCP&L and Atmos Energy at least allowed me to manage my payment methods online. They both required me to cancel automatic payments, wait two days, and then initiate automatic payments again with the new account information, but it was straightforward enough. WaterOne and City of Olathe, however, require a printed form to be mailed or faxed (ha!) along with a voided check for the new account.
I really don't write many checks. Just about the only time I write checks is when someone offers a discount for paying with "cash." So, I paid for my storm door and my furnace by check, and that's it for the past three years. Except for the homeowners' association dues, but I really shouldn't go into my complaints with them right now. Basically, I don't write checks. When I opened my Bank of America checking account, I didn't get checks with it because...I don't write checks. And I have checks for my E*TRADE brokerage account for those one or two checks a year I do write.
Ah ha! But Waterone and the City of Olathe require voided checks. So, in order to not have to write checks, I had to order checks and void them out. Really, that's what I had to do. The minimum order was 150 checks (thankfully free to me because Bank of America bought my mortgage). I tore out two, wrote "VOID" on them, and put the rest back in the box they came in. What a waste!
WaterOne and the City of Olathe make changing account information a hassle. It cost me time, two stamps, and two envelopes; it cost Bank of America 150 useless checks plus shipping; it cost WaterOne and City of Olathe personnel time to process the hand-written form. You know what's even worse? WaterOne still doesn't even offer paperless billing!
Now, KCP&L and Atmos Energy at least allowed me to manage my payment methods online. They both required me to cancel automatic payments, wait two days, and then initiate automatic payments again with the new account information, but it was straightforward enough. WaterOne and City of Olathe, however, require a printed form to be mailed or faxed (ha!) along with a voided check for the new account.
I really don't write many checks. Just about the only time I write checks is when someone offers a discount for paying with "cash." So, I paid for my storm door and my furnace by check, and that's it for the past three years. Except for the homeowners' association dues, but I really shouldn't go into my complaints with them right now. Basically, I don't write checks. When I opened my Bank of America checking account, I didn't get checks with it because...I don't write checks. And I have checks for my E*TRADE brokerage account for those one or two checks a year I do write.
Ah ha! But Waterone and the City of Olathe require voided checks. So, in order to not have to write checks, I had to order checks and void them out. Really, that's what I had to do. The minimum order was 150 checks (thankfully free to me because Bank of America bought my mortgage). I tore out two, wrote "VOID" on them, and put the rest back in the box they came in. What a waste!
WaterOne and the City of Olathe make changing account information a hassle. It cost me time, two stamps, and two envelopes; it cost Bank of America 150 useless checks plus shipping; it cost WaterOne and City of Olathe personnel time to process the hand-written form. You know what's even worse? WaterOne still doesn't even offer paperless billing!
Friday, December 5, 2008
Chase Freedom Rewards
My Chase Freedom credit card gives me an extra $50 bonus if I save up my rewards until I get $200. I'm quite close, and after this month, I may just hit the $200 mark. I've been putting tons of stuff on my credit card, including buying gifts online on behalf of my parents as a method of paying them back the money I borrowed earlier. I also purchased a new TV for the living room; a Sharp Aquos 42" LCD 1080p.
All told, I've got $1300 in purchases racked up over just two orders. Since I get at least 1% back on that (plus 2% of the ~$500 I spent at newegg.com), I'm estimating a healthy reward for doing my part in helping the economy recover. Oh, and I'm thinking of spending another $350 or so to get a second 24" monitor so I can be more productive during my online TV watching. In fact, I may just do that tomorrow...
All told, I've got $1300 in purchases racked up over just two orders. Since I get at least 1% back on that (plus 2% of the ~$500 I spent at newegg.com), I'm estimating a healthy reward for doing my part in helping the economy recover. Oh, and I'm thinking of spending another $350 or so to get a second 24" monitor so I can be more productive during my online TV watching. In fact, I may just do that tomorrow...
Sunday, July 13, 2008
New computer specs
I've begun purchasing components for my new computer! I'm getting very excited. It will end up very similar to this one: Ultima. I've purchased the ram and power supply in order to take advantage of mail-in rebates that expire on the 15th or so. I will purchase the rest in my next credit card billing cycle, most likely.
Update: The HD4870 has fallen in price to $284.99! $25 saved so far just by waiting!
| Qty. | Image | Product Description | Unit Price | Savings | Total Price |
|---|---|---|---|---|---|
| 1 |  | $189.99 | -$20.00 Instant, $50.00 mail-in | $119.99 | |
| 1 |  | $284.99 | $284.99 | ||
| 2 |  | $99.99 | -$8.00 Instant. $35.00 mail-in | $113.98 | |
| 1 |  | $329.99 | $329.99 | ||
| 1 |  | $21.99 | $21.99 | ||
| 1 |  | $119.99 | -$30.00 Instant | $89.99 | |
| 1 |  | $94.99 | -$5.00 Instant | $89.99 | |
| 1 |  | $234.99 | -$20.00 Instant | $214.99 | |
| Subtotal: | $1,265.91 | ||||
Update: The HD4870 has fallen in price to $284.99! $25 saved so far just by waiting!
Thursday, March 6, 2008
Managing debt
I grew up thinking that debt was a bad thing. Why buy a car when you can't afford it outright? I understood that houses required mortgages, but why put things on credit cards when you can pay cash? Managed properly, debt, even in credit card form, can be a good thing.
Spending
A lot of proper debt management depends on a realistic assessment of your spending habits. I, for example, don't tend to buy things. Or, I didn't until I bought a house and needed to put things in it. I have no expensive hobbies (compared to my brother who buys guitars and related equipment quite often) and I keep my monthly spending constant within a couple hundred dollars, in general.
In short, my spending habits are well defined and I track them informally. I also have a pretty stable job. IBM is a $160B company and people seem to like what I do there. Thus, I have a demonstrated discipline when it comes to spending and a pretty solid income. The risk of me not being able to pay my monthly bills is fairly low, so debt shouldn't be an undue emotional burden.
Interest Rates
The rest of debt management is interest rates. Most debt is pretty simple, actually. The interest rate is advertised directly. Some interest is tax deductible, though, in which case you need to multiply the advertised interest rate by (1 - your tax rate). For example, if you're in the 25% tax bracket and have a 6% mortgage, you're effectively only paying 4.5%.
If you can beat the interest rate determined above through investing, you can actually make money by going into debt. Even with the recent downturn, The S&P500 index has seen annualized growth of 9.516% over the last 5 years. That pesky tax rate works against us a bit, here, though. Interest income and short term capital gains are taxed as regular income, while long term capital gains are taxed at a 15% flat rate. For a worst case scenario, we can assume everything will be taxed as regular income. We need to now divide our effective interest rate from above by (1 - your tax rate) to get an rate of return goal. That 4.5% becomes 6% again. An 18% credit card interest rate becomes a 24% goal. Whatever we invest in, we need to beat this final rate in order for the debt to be profitable.
Over the long term, an 8% annualized return is fairly achievable. If you can invest money borrowed at 6% (effective) or lower, it is likely that you will be able to make money on money you don't actually have. This whole argument only applies if you have the money available to invest, though. If you borrow money to buy things, then that money isn't working for you.
Credit Cards
When there is something you need to buy, credit card debt can still be a good thing (even a card with an 18% interest rate!). The key is to not keep an interest-bearing balance. Pay the credit card off completely each month and you've basically borrowed money for 30-50 days interest free. You can keep that money in a high interest savings account and earn an extra few dollars by using a credit card instead of cash. Even better, you can get a credit card with additional cash back like the Chase Freedom card and/or Citi Dividends card.
Keep in mind that interest-free financing isn't a free pass to go on a spending spree. You still have to pay the purchase price. However, a store's 0% financing credit line can actually be better than cash back credit cards. I'll leave it as an exercise for the reader to determine a formula based on bank account savings rate, b, financing period, t, and cash back bonus, c, that calculates the break-even surface.
Spending
A lot of proper debt management depends on a realistic assessment of your spending habits. I, for example, don't tend to buy things. Or, I didn't until I bought a house and needed to put things in it. I have no expensive hobbies (compared to my brother who buys guitars and related equipment quite often) and I keep my monthly spending constant within a couple hundred dollars, in general.
In short, my spending habits are well defined and I track them informally. I also have a pretty stable job. IBM is a $160B company and people seem to like what I do there. Thus, I have a demonstrated discipline when it comes to spending and a pretty solid income. The risk of me not being able to pay my monthly bills is fairly low, so debt shouldn't be an undue emotional burden.
Interest Rates
The rest of debt management is interest rates. Most debt is pretty simple, actually. The interest rate is advertised directly. Some interest is tax deductible, though, in which case you need to multiply the advertised interest rate by (1 - your tax rate). For example, if you're in the 25% tax bracket and have a 6% mortgage, you're effectively only paying 4.5%.
If you can beat the interest rate determined above through investing, you can actually make money by going into debt. Even with the recent downturn, The S&P500 index has seen annualized growth of 9.516% over the last 5 years. That pesky tax rate works against us a bit, here, though. Interest income and short term capital gains are taxed as regular income, while long term capital gains are taxed at a 15% flat rate. For a worst case scenario, we can assume everything will be taxed as regular income. We need to now divide our effective interest rate from above by (1 - your tax rate) to get an rate of return goal. That 4.5% becomes 6% again. An 18% credit card interest rate becomes a 24% goal. Whatever we invest in, we need to beat this final rate in order for the debt to be profitable.
Over the long term, an 8% annualized return is fairly achievable. If you can invest money borrowed at 6% (effective) or lower, it is likely that you will be able to make money on money you don't actually have. This whole argument only applies if you have the money available to invest, though. If you borrow money to buy things, then that money isn't working for you.
Credit Cards
When there is something you need to buy, credit card debt can still be a good thing (even a card with an 18% interest rate!). The key is to not keep an interest-bearing balance. Pay the credit card off completely each month and you've basically borrowed money for 30-50 days interest free. You can keep that money in a high interest savings account and earn an extra few dollars by using a credit card instead of cash. Even better, you can get a credit card with additional cash back like the Chase Freedom card and/or Citi Dividends card.
Keep in mind that interest-free financing isn't a free pass to go on a spending spree. You still have to pay the purchase price. However, a store's 0% financing credit line can actually be better than cash back credit cards. I'll leave it as an exercise for the reader to determine a formula based on bank account savings rate, b, financing period, t, and cash back bonus, c, that calculates the break-even surface.
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