Thursday, September 30, 2010

Net Worth Sept 2010 (+17.5%) And UPDATE

Ok, enough talk about refinance.  It's a great idea and as we are awaiting closing, here's an update of our net worth for month ending September.

Mint now uses Zestimate to appraise the house. It came out to be $233k opposed to the previous $217k so from that perspective our net worth has increased dramatically, but I know paper value is no value at all (gain of about 7.3%).

In our investments we have made tremendous gains as well. Last month was at $68.5k but thanks to the rally in the market it has spiked to $75.5k an almost 10% return in one month.

So overall, our networth has increased by a value of 17.5% if you include the house, or about 6.6% without the house. Not bad.

Today is end of fiscal year at work. I have produced 110% at work which means BONUS + I finally worked some overtime (which meant doing more work than I had to). This 40hours of extra work + bonus = faster savings/payoff of house.

Why didn't I think of this earlier? I think I did think of this, but just too lazy to implement. In any case, I'm not sure how sustainable all this overtime is, but I'll try my best.

On a side note, I have continued to attack the remainder of my seminary degree in full force. I have completed 23 credits in the past 3 years. I am taking 5 credits this semester, plan to take 4 credits in the winter, and 9 credits in the spring. This will take me to 19 credits to go for the Masters in Religion.

I first started taking classes once I was laid off from my teaching position and started at my current gig. Now that my learning curve has ramped up, I am able to do more work with better quality at a much more efficient rate. As a result, I have more time to study. I hope to finish before 2012, God willing. haha.

So goals for the next 5 years:
- Finish MAR degree (Goal Spring 2012)
- Get my next promotion at work (Goal 07/2011)
- Possibly work from home (Goal 12/2012)
- Have more KIDS!! (TBD)
- Buy a new house to fit more kids (TBD)

Near term goals:
- Continue serving at church with teaching duties
- Create/establish home school curriculum for my girls
- Increase production to 120% plus 40 hours of overtime per bi-week
- Refinance house - reduce mortgage w/ possiblity of renting/buying a new place

Thursday, September 23, 2010

Refinance Analysis Part 4

Okay, so Bankrate has a number of questions they ask you in order to determine if a 15 or 30 year mortgage is best for you.  I think this is the best tool out there.  It actually looks at your specific situation in regards to what you will do with the extra money, retirement, investments, etc. etc.

So here's the breakdown:

Your Costs for a $172,000.00 Fixed-Rate Mortgage:

15-Year at 3.80 %
Monthly Payment = $1,255.00
Interest First 5 Years = $28,443.00
Total Interest = $53,917.00

30-Year at 4.25 %
Monthly Payment = $ 846.00
Interest First 5 Years = $34,957.00

Total Interest = $132,609.00

Here's how we got it: Your viewpoint on monthly payments: Your answers indicates that you are concerned about the size of the your monthly mortgage payments. This points in favor of a 30-year mortgage which allows you to have lower monthly payments. Specifically, in your case, based on the numbers you entered during this session, the monthly payments for a 30-year mortgage will be $409 lower than those of the comparable 15-year mortgage (see the chart above).

Your monthly budget: You indicated that you have some flexibility in your monthly budget. This suggests that a 15-year mortgage, which requires higher monthly payments, may be a good choice for you. (In contrast, if you had said that your monthly budget were very tight, that would point in favor of a 30-year mortgage, which allows lower monthly payments).

The type of home you are seeking: You indicated that you don't expect to buy the "most house" you can possibly afford. This suggests that the 30-year mortgage may not be right for you because one of the main advantages of the 30-year mortgage is that it enables people to borrow the most money they can based on their monthly budget. In contrast, a 15-year mortgage is generally better for people who are willing to buy less house than they can afford and want to spend additional money each month to pay-off the mortgage more quickly.

Your investment habits: You indicated that you are a diligent investor looking for the best returns on your money. This points strongly in favor of a 30-year mortgage because a 30-year mortgage allows you to make lower monthly payments that can give you "extra" cash each month to put into investments that can provide a return higher than the 15-year mortgage rate, which you indicated to be 3.80%. Also, you are in a good position to invest relatively aggressively now because you are not yet close retirement, which means you have the time to ride-out the volatility of more-aggressive investments. But note: To make the most of your 30-year mortgage, you need to be diligent about investing the extra cash you'll have each month due to the 30-year mortgage.

Your retirement savings: You said that you are contributing the maximum to retirement savings plans. Good job! That's a great way to secure your financial future, especially for you because you still have approximately 30 years until retirement, which give you lots of years to benefit from compounding interest on your pre-tax dollars. The fact that you are already maximizing your contributions to retirement savings plans suggests that you may not need the lower monthly payments offered by the 30-year mortgage.

Your emergency savings: You indicated that you think you probably have a sufficient emergency fund, which is something you should feel very good about. This suggests that you may not need the lower monthly payments that come with a 30-year mortgage.

Your years to retirement: You indicated that you have 30 years remaining before you plan to retire. In general, the further you are from retirement, the more a 30-year mortgage makes sense for you. Here's why: As you know, the 30-year mortgage allows lower monthly payments which can give you extra cash each month that you can put into investments that can provide a return higher than the 15-year mortgage rate.In your case, you are in a very good position to invest relatively aggressively now because you have a lot of time to ride-out the volatility of more-aggressive investments. (But remember: To make the most of your 30-year mortgage, you need to be diligent about investing the "extra" cash you'll have each month due to the 30-year mortgage.)

SO FINAL ANALYSIS: We think you should go for the 30-YEAR MORTGAGE

Wednesday, September 22, 2010

Refinance analysis Part 3

Still thinking about what is a better deal both in the long run and in the short term.

Interest rates are at historical lows, so getting as much money in hand is better than having it stuck in the mortgage.  However, 30 years is a long time to have mortgage payments especially if I have to pay interest.

So here's the breakdown as I see it:

Refinancing is the best option.  It reduces my mortgage payment as well as decreasing my total interest paid.

The questions is should I do 15 years or 30 years?  With an interest rate of 3.8% for 15 years and 4.375% for 30 years, the monthly payments are about $1,300 and $890 respectively.  That means I pay about $400 more to reduce it 15 years.  As I've done the calculation before, that $400/month put into any investment fund that averages more than 5% a year would make over 100k in 15 years, just enough to payoff the remainder principal at that time.  If that investment does better than 5%, say 10%, we'll have $150k, or $50k extra after paying the remainder of the principal. 

As some of the financial advisors have said, it all depends on what your situation is at this time.  Knowing that we'll have put 20% of our equity in our house, putting any more money in there might not be the best option.  So having some on the side for other purposes including: college fund, retirement fund, vacation fund, investment fund, new house fund, etc. might be better. 

For example:  You're 30 something, you have $150k in your house making zero (at least in this current market), but you could have this invested in some low cost stocks/mutual funds... that average out to 5-10% annually.  I know it's risky, but over the 15 year time frame, I think you can find at least 1-2 stocks that go up... 

Anyways, the key to this is DIVERSIFY.  Dave Ramsey says to payoff your house as fast as possible, i.e. ZERO DEBT.  Some say don't put all your eggs into one basket.  Spread out your investments, so you get tax break from the interest in your mortgage, etc. etc.  I think Ramsey is right because people are naturally stupid and greedy.  If they have money on hand, they'll waste it on stuff, which means those who stash their extra money away by paying off ALL debts might be the wisest thing to do. 

But alas, I do like having money on hand... but alas, I know if I do, I'll spend it.  Oh the decisions I have to make. :)

Tuesday, September 21, 2010

Refinance Part 2

Going over all the numbers over deciding to refinance or not.  According to this simple... very simple Bankrate calculator, it will take me 20 months in order to break even.

So that means the extra $5k I paid in principal reduction would be lost to the closing costs. The new monthly mortgage is $250 less... meaning:
$5k/$250= 20months. Or even less than that if you include the canceling of PMI...

$5k/$350 = 14.3months or 2years.

It'll pay for itself in the long run. I hope. The new interest rate is 4.375 for a 30 year loan. Should I go for 15 year loan at 3.8?

Sunday, September 19, 2010


So I called our Mortgage company.  Apparently they won't automatically cancel our PMI even though we have passed 80% LTV.  I called a couple times and they required we do an appraisal.  So this will cost us about $300-500 depending on who does it.

Without PMI, our mortgage at 5.5% would be 1098.  Add 200 for insurance and tax, and that means a monthly payment of about $1300.

Looking at our current situation, a refinance would reduce our monthly payment considerably but the closing costs are higher than I expected.

Okay, here's the breakdown from one loan officer:

A 177,000 loan for 30 years @ 4.375% would be: $883, plus $200 would be $1083, saving us about $220 a month.

A 177,000 loan for 15 years @ 3.8% would be: $1291, plus $200 would be $1491, an extra $200 a month but reducing the interest over the entire loan by about $75,000.

So, I'll let you know what we decide to do.  I'm also considering a cashout, but that depends on how much the house appraises for.

Wednesday, September 1, 2010

PMI - Home Mortgage

After this month's mortgage payment along with accelerated principal reduction we have dropped under 80% LTV meaning PMI could be dropped.  I will call our Mortgage company tomorrow to do that.  But this is a good milestone for us.  Something we worked on for the past year considering we put 10% down when we bought the house. 

So here's the question: Should we continue to pay down the mortgage OR save the extra principal payments to buy a new house?

I think I know what we should do... but let me hear your opinions.