Refinancing Your Mortgage Isn’t As Easy As They Claim

We’re not struggling to make mortgage payments, but some extra cash flow wouldn’t hurt. That’s why I was looking into our refinance options.

Wells Fargo’s website screamed out, “Online Refinancing for Existing Customers! No Closing Costs!” While I figured the interest rate wouldn’t be spectacular, anything that lowered our currently mortgage payment would be great. And no closing costs? Bonus! We have excellent credit scores and history, so I figured we’d be shoo-ins for this no-cost refinance program. Right?

Wrong. I know, I know. I fell for it. As someone who deals with advertisers and public relations reps on a regular basis, I should have known better.

The mortgage rep emails me that we don’t qualify for the no-cost refinance program, but we could reduce our payments by $200 a month with a lower interest rate of 4.125% — so let him know if we wanted to go ahead so he could start the paperwork. Whoa, slow down, buddy. There was no further explanation. I then had to email back and forth with him to find out if there were going to be closing costs/points, what would happen with our current escrow, if there would be a prepayment penalty attached, whether there would be another home appraisal, and if we’d get stuck paying PMI (private mortgage insurance).

It took a few days, but I got my answers:

Our current interest rate: 5%

Proposed refi interest rate: 4.125%

PLUS: $3500 in closing costs

PLUS: Thousands of dollars more toward a whole new escrow account for property taxes and insurance
(while waiting for the old escrow funds to be returned to us)

PLUS: The possibility of $80/month in PMI payments if the appraisal put us back above the benchmark 80% loan-to-value ratio.

 

A few things that make it more difficult to refinance

  • Being “underwater” on your home: owing more than your house is worth
  • Bad credit and/or a low credit score
  • Lower Appraisal Value on your home
  • High Loan-to-Value ratio. If you don’t have a lot of equity in your home
  • High closing costs

 

Why we probably won’t refinance right now

Closing Costs. This would be either money out of our pocket or rolled into the new mortgage, increasing the payment, interest and total amount owed. No thanks. Of the $3,500 quoted as the “closing costs,” $699 is a fee paid to Wells Fargo. I’m willing to bet our closing costs would be higher in the end, if they tack on things that aren’t included, such as a needed home appraisal.

“Escrow Juggling.” We’d have to pony up the cash to fund a new escrow account — they won’t just pull the money from our existing account. That’s another $3,000 or so, an amount, as the mortgage rep so glibly told me, could be rolled into the new mortgage amount and then repaid once our old escrow is cashed out and returned to us.

Not Enough Savings. The $200 a month we could save is reduced to $185 if we roll in the closing costs, and plummets to $100 if we get stuck paying PMI for a few years. I didn’t even bother calculating how much less it would be if we also incorporated the new escrow amount into the mortgage. It’d be a lot of work to see a savings of barely $100 per month. Yes, it does add up over time, but the upfront costs aren’t worth it at the moment.

Increase in Mortgage Amount. Our current principal would go up $3,500 for closing costs, plus another $3,000 for escrow. That’s unacceptable.

Possibility of Additional PMI Payment. Home prices have dropped since we purchased our home three years ago. So even though we put 20% down and have been paying toward the principal for 3 years, we’re probably just a few thousand dollars short of that magic 80% loan-to-value ratio, if I use the Zillow estimate. And if we rolled the closing costs and new escrow payments into a new mortgage, we’d be even further away from a no-PMI payment.

If we DID refinance despite all these variables and increased costs, sure, it would save us anywhere from $25,000 to $30,000 in interest. We can reduce our interest costs by making extra principal payments over the life of the loan. So while we can’t throw a ton of money at the mortgage now, I add anywhere from $25-$50 in an extra principal payment each month. Every little bit helps: Just an extra $25 per month will save us more than $11,000 in interest and shorten the mortgage by a year. So while we won’t be lowering our monthly payment, we can still get ahead by prepaying the principal through extra contributions.

Work and Family: It’s a Balancing Act

As I’m sure I’ve mentioned before, I work a full-time job with a crazy schedule that allows me some extra time to do some freelancing writing and editing. I’m not a TV-watcher like my husband, who could spend every minute of the day (and night) in front of the boob tube, so in my free time, I hustle for a little extra money to offset any major expenses and pad our savings account.

Now that we have Baby Frugalista — who turned 1 year old on Groundhog Day, and will always be my “baby,” no matter her age — I’ve sought out fewer gigs so I can spend more time with her. It’s a no-brainer, but it gives me more pleasure to spend an hour at the park with her than to write an article. But with the costs associated with raising a child (CNN reports a 40% increase in the cost of raising a child in the past decade), such as food, clothing, daycare and saving for college, I find that we could use that extra money.

Compromise

After our daughter was born, I was on maternity leave for 6 months. So not only was I not getting my usual salary, I wasn’t freelancing, either. When I went back to work, I was able to find a balance — I’d only take on freelance assignments if I would be able to complete them in the evenings after the baby went to sleep. That meant not working on projects on my days off or weekends. As she settled into a bedtime routine, I found that this is what has worked for me. We still have family time, and I still get to keep my skills sharp and increase our cash flow.

The good thing is that I can accept most projects offered to me, but I’ve also turned down a few that didn’t fit into my self-imposed limitations.

It’s just one of the ways my life has changed since her birth. As parents, you’re supposed to make sacrifices for your children, and I do so willingly and lovingly.

Working parents — how have you sacrificed when it comes to balancing work and family?

Technology Is Making You Broke

As I was passing our local Verizon Wireless store on my way home from work the other night, I realized that I’m actually excited to finally join the 21st century and get us some smartphones in April, when our contract allows us to do so. But I’m not excited to spend the money on a nicer model, such as the iPhone 4S or the Motorola Droid Razr. I’ve heard smartphones are miracle machines, but at the same time, I’ve heard many complain about their epic battery usage — my aunt takes to carrying her phone charger with her 24/7.

Not only will it probably cost us a few hundred dollars for two new smartphones, but, naturally, it will cost an extra $20 per month for each of us ($40 total) for an upgraded data plan. We already have a small $10/month data plan on our “feature phones” — and they’re not very feature-y.

It got me thinking of how much folks spend on technology nowadays. There’s cable TV, DVDs, video games, computers, GPS, Internet service, home phones and cell phones, tablets like the iPad, iPods and other music players, and all the service plans and accessories that go with them. Because Mr. Not-So-Frugal is a TV/movie addict, we have the jacked-up TV plan with all the movie channels — PLUS streaming video and DVD service from Netflix. The cost is enough to make a PF blogger want to curl up into a ball.

Add up all of the costs for your technology, and the result will likely be staggering. There’s the cost of the gadget itself, plus continuing service and maintenance/insurance plans. And many of us — myself included — have duplicate services:

— Not only do we have two laptops with Internet service in our home, both of us have (limited) Internet service on our phones. I can also access the Internet on my Nook.

— We have phone service through our cell phones and our landline. Are both necessary? Probably not, but it costs just as much NOT to have the landline phone service.

— We can watch TV on the actual television, through our Roku, and on DVD through our Netflix subscription. I can also stream movies online on my computer or my on my Nook.

— I listen to music on the old-school radio, on my iPod or through my phone.

— Some people I know have both desktop computers/laptops and tablet computers such as iPads.

I’m starting to think there eventually will be a way to combine all of these things, but that would cut into the manufacturers’ bottom line. The more devices, the more money — it’s simple math.

 

A Whole New World

Just a generation ago, we had simple color TVs, landlines and Ataris. Maybe an answering machine and a VCR, if you wanted to be fancy. Now, adults and kids alike have all of these technology-filled toys and gadgets. Our fascination and dependence on electronic doodads has even affected the way our little ones interact. She’s just turned 1, but Baby Frugalista has a playroom full of toys that make sounds and light up — and require batteries. Our little imp even recognizes that my cell phone and Nook tablet both have touch screens, using her baby thumbs to “push” at the screens to make things happen. And that’s just from watching me — I don’t give her my Mommy toys, but sometimes she toddles over and wants to join in the fun.

I’m torn between wanting our daughter to be gadget-free (I have nightmares of her playing Angry Birds at the age of 2) and wanting her to be fully immersed in technology. It’s going to be hard to draw a line. It’s also difficult for us as adults, as we’re weighing saving money against keeping up with technology — and I don’t mean buying a new iPhone every time a new model comes up. I’m talking about things like finally entering the world of smartphones, in general. I’m sure I’ll blog about our experiences in choosing new phones in a few months. Keeping up with the Joneses has become even more difficult in this day and age.

The Best Credit Card Deals For You

Is there such a thing as a good credit card? It can be good if you benefit financially from being the proud owner of one.

Money Beagle wonders if the Costco American Express True Rewards credit card will be a good fit for him and his wife. This card offers a rewards program that gives a yearly certificate toward an in-store Costco purchase after you earn 3% on gas purchases (4% if it’s the business version of the Costco Card), 2% on other categories (such as restaurants) and 1% on everything else. If you’re a Costco member, there’s no annual fee on the card.

This sounds like a good card for his family, since they are already Costco members and do a bunch of shopping there. Obviously, if you choose to go with a card where most of the perks revolve around a certain store or restaurant, you’d best be a good customer to make the most out of your perks.

I’m a fan of my Chase Sapphire card, which is one of the best credit card dealsI’ve found that benefits me and the way I spend money (you can find the credit card deal that suits you best via comparison sites like http://www.comparethemarket.com/credit-cards/). Since I don’t use my credit cards for the typical gas purchases and restaurant tabs, this card is a one-size-fits-all for me, as I earn 1 point for every dollar spent on purchases. Sometimes, there are bonus points for viewing a Chase promotional video or other customer-driven interaction.

Instead of using my points on gift cards or baubles, I’m able to use them to reduce my credit card balance, which is exactly what I did this week — $60 came right off. My Capital One Rewards credit card points can also be used in the same manner, but only after I meet a certain threshold of 5,000 points. The Chase Sapphire threshold is 2,000, I believe.

But the best credit card deal I’ve got going is definitely my FIA credit card, with a paltry 6.24% interest rate — that’s half of what my other two major credit cards are charging in interest. And I’ve got a stellar, near-800 credit score (or above, depending on the credit reporting bureau). So if I’m going to carry a large balance for more than a month or two (think new furniture or the medical bills from Baby Frugalista’s birth), I’ll put it on the FIA card.

Of course, there’s always something: I just received a notice that Bank of America (gasp!) is taking over my FIA card. I’m not thrilled about this development, but we’ll see how it shakes out. Hopefully, it will still be the best credit card deal in my wallet.

Do you have a go-to credit card? What makes it stand out for you?